Netflix’s margins will be pressured despite subscribers’ growth, analysts say

Netflix’s stock surged 9.2 percent on Monday, and the streaming giant successfully added more than 7.4 million international new users in the first quarter, exceeding analysts’ expectations.

Despite the streaming service provider’s positive earning’s growth, an analyst said that the spending on content and marketing would put Netflix’s margin under pressure.

o According to Jefferies equity analyst John Janedis, Netflix’s estimate for a 12 percent operating margin in the first semester of this year compares with its full-year prediction of 10 to 11 percent due to rising expenses on marketing and content.

The company’s cash flow negative will last for several years. “The burn rate has been a focus,”Janedis said.

Free cash flow stood negatively at US$ 287 million for the quarter.

Janedis set a share price target on Netflix to US$ 312 a share from US$ 236. Meanwhile, Netflix’s results were satisfactory despite struggling with a high valuation and towering expectations, said Barton Crockett, an analyst at B.Riley FBR on Tuesday.

He also increased his price per share target on Netflix from US$ 243 to US$ 313.

Subscribers are the king

Netflix’s success in adding new users worldwide is just a beginning, said Michael Graham from Canaccord Genuity.

The internet and media specialist stated in”Power Lunch” on Tuesday that the company will continue to expand the subscriber based. He expected that Netflix will add 70 million users between now and the end of 2020.

Despite the increased spending on content, the revenue will continue to grow.

Netflix’s shares traded at 226 times earnings and more than 20 companies hiked Netflix’s price a share target, including Canaccord Genuity.

Netflix is considered the best place for movie makers and creative talents to display what they have.

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