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Not every Wall Street analyst is gaga over Netflix

Key Points
  • Netflix could spend $8 billion on original content, its CFO said on Monday, and two analysts expressed concern that much of its revenue would be eaten up by this spending.
  • However, Netflix's recently announced price increases in the U.S. could be helpful in handling the "cash burn," the analysts say.
  • Netflix announced earlier this month that it would be increasing the price of its subscription to users in the U.S.
Netflix Co-founder and Chief Executive Officer Reed Hastings.
Stephane De Sakutin | AFP | Getty Images

While the rest of Wall Street was gushing over Netflix's earnings results on Monday, there were two major analysts on the sidelines, citing concerns about lower profit margins as the video streaming giant spends big on content.

Credit Suisse analyst Stephen Ju and Jefferies analyst John Janedis both expressed concerns that much of Netflix's revenue will be offset by mounting content expenses.

Netflix's CFO, David Wells, said Monday that the company could spend up to $8 billion for original content alone.

On the other hand, both the Credit Suisse and Jefferies analysts agreed that Netflix's recently announced price increases in the United States would be helpful in handling the "cash burn."

The company's $10-a-month high-definition plan will now cost $11, according to changes reflected on Netflix's subscription page earlier this month. Netflix's 4K streaming plan, which provides higher-quality content, will cost $14 per month, a $2 increase.

"It does appear that Netflix will roll out to the relevant markets at one time, which does raise our revenue estimates for 2018," wrote Credit Suisse analyst Stephen Ju. "This is offset by increased content acquisition spend expectations of between $10.9-$12.4b next year ... We remain on the sidelines on balanced risk/reward and maintain our neutral rating."

Jefferies analyst John Janedis added, "we expect the business will remain cash flow negative for several years, largely driven by significant cash spend on original programming." The analyst said spending on original shows will overtake spending on other programming as many rein in licensed content.

Ju cut his 12-month price target on Netflix to $209 from $210, while Janedis raised his target to $190 from $180. Netflix closed at $199.48 on Tuesday: Ju's target is roughly 3 percent higher than its current price while Janedis' target implies a approximate 6 percent decline.

The company's shares have rallied 64 percent this year through Monday versus the S&P 500's 14 percent return. However, shares fell 0.25 percent Tuesday, a morning after the earnings report.

"It's exciting that everyone is trying to make over-the-top television better and better, and I think that is good for all of us," said Theodore Sarandos, Netflix's chief content officer, on Monday. "We just have to focus on creating content that our members can't live without and get excited about every month."