- Netflix missed Wall Street’s expectations for subscriber additions on Tuesday, sending shares down as much as 14%.
- Despite the miss, many Wall Street analysts have upped their price targets for the streaming giant.
- Follow Netflix’s stock price in real-time here.
Shares of Netflix plummeted Monday evening following a disappointing earnings report from the streaming giant.
The stock plunged as much as 14% after missing Wall Street’s expectations for subscriber growth for the first time in more than a year, adding just 5.2 million new customers where analyst had expected 6.3 million new ones. It also fell short on total revenue.
Still, plenty of analysts found a silver lining, and upgraded the stock or raised their price target. The Wall Street consensus for Netflix shares is now $US372, according to Bloomberg data, – 6% above Tuesday’s opening price.
Here’s what Wall Street is saying about Netflix’s earnings:
Price target: $US434 (raised from $US372)
“Finally, the day (almost) every NFLX investor had been waiting for. Everybody knew the day would someday come when Netflix would fall short of quarterly subscriber expectations. It’s been 5 quarters (actually, more like 8,” analyst Todd Jeunger said. “Here is that day.”
Still, Juenger has raised his pace target to a 24% premium over where shares opened Tuesday morning.
“We began planning for this change long before the EPS result,” said the firm. “It is simply bringing our target price methodology in line with how we have long described our view on the stock.”
Price target: $US320 (raised from $US312)
“Despite the continued strength in NFLX’s international growth, sub adds in 3Q are expected to slow q/q (somewhat mitigated by a higher % paid),” analyst John Janedis said. “By and large, emerging markets have seen higher levels of churn given accelerated adoption, a dynamic which should normalize as tenure of the sub base increases.”
“We remain optimistic on the international opportunity, esp. in regions like India where broadband penetration is growing rapidly (in addition to the introduction of new local content).”
RBC Capital Markets
Price target: $US360 (unchanged)
“We’ve seen this movie before. After four quarters of beating internal expectations, Netflix missed them this quarter,” analyst Mark Mahaney said.
“Q2 is generally one of the lumpiest (i.e. weakest) quarters for the company as summer rolls around and Sub Adds decrease, adding difficulty to the forecast. We think World Cup distraction may have hurt Q2 slightly as well, as did lack of a mega-release like ’13 Reasons Why.’ Nevertheless, we believe our fundamental long-term thesis remains intact, as we estimate Sub Adds and Revenue growth will still accelerate in ’18 vs. ’17, while Operating Margins continue to ramp.”
Price target: $US500 (unchanged)
“We believe this is a speed bump rather than the start of a negative sub trend for Netflix as the streaming market and content arms race continues to be a major tailwind for the company over the next 12 to 18 months,” analyst Daniel Ives said. “While the knee jerk reaction will clearly be negative from the Street’s perspective, we would be buyers of Netflix on this weakness.”
Price target: $US370 (unchanged)
“The lighter net adds numbers do not appear to have been impacted by the price increases the company executed in select regions last year, and the longer term opportunity abroad seems to be on track,” analyst Mark Kelley said.
“Growth outside the domestic market focused primarily on India, with an outlook for growth that should mirror fixed broadband penetration over the next three years, though mobile is expected to contribute over time as well. In our view, the opportunity remains unchanged and our numbers don’t move much though we believe shares are appropriately priced here.”
Price target: $US470 (lowered from $US500)
“Management noted that the culprit in the 2Q net adds miss was fewer gross adds than expected, rather than churn, and that all other factors they track continue to be favourable (such as median consumption at record levels),” analyst Douglas Mitchelson said.
“This suggests to us that the challenge in 2Q/3Q 2018 is tough content comparisons against last year’s phenomenon ’13 Reasons Why.’ It follows, then, that investors will need to track Netflix’s content slate even closer than before. Management has been noting that 2018 would be 2H-weighted for content.”
Price target: $US406 (unchanged), upgraded to “buy” rating
“Notable content released during 2Q included ‘Lost in Space,’ ’13 Reasons Why’ S2, Marvel’s ‘Luke Cage’ S2, ‘La Casa de Papel,’ and ‘GLOW’ S2, a lineup which may have been lighter on unexpected hits than in other recent quarters,” analyst Scott Devitt said.
“We expect the content slate to provide greater optionality due to the backhalf weighted release schedule / concentrated marketing budget (notable 2H content includes ‘Orange Is the New Black,’ ‘Ozark,’ Marvel’s ‘Iron Fist,’ Marvel’s ‘Daredevil,’ ‘Narcos,’ ‘House of Cards,’ ‘Maniac,’ ‘Insatiable,’ and ‘Ghoul’).”
Price target: $US378 (unchanged)
“In our view, the large subscriber miss and variance from 1Q:18 subscriber growth trajectory is frustrating, but does not signal a shift in the fundamental drivers of Netflix’s business: 1) shift of content viewing from linear television to OTT, 2) scale advantages inherent in a global OTT streaming model and 3) large first-mover advantage,” analyst Jason Helfstein said.
“Our current “best guess” is that the subscriber miss was caused by a combination of lack of “tent pole” content launched intra-quarter and World Cup disruption; neither factor is secular or fundamental to the model. Meanwhile, engagement continues to improve, signalling Netflix’s value is increasing, implying substantial pricing power over time.”
Price target: $US360 (lowered from $US425)
“While not a huge disconnect vs. our long-term expectations, we see NFLX’s Q2 results and Q3 forward commentary as a clear break from recent business model momentum (& hence the after-hours correction in the stock price),” analyst Eric Sheridan said.
“Longer-term, we still see NFLX as a global leader in streaming media and that NFLX management’s focus on expanding the competitive moat via a mix of content spend, brand/content awareness (through marketing spend) and subscriber growth all continue to point to sustained top-line growth & forward margin expansion.”
BMO Capital Markets
Price target: $US400 (unchanged), upgraded to “outperform” rating
“We believe positions can be built at these levels (-14% after hours) as incremental investment points enter the story, including 1) we expect the India (and Japan) growth stories to build into 2019, 2) we expect NFLX to continue to transition to more originals from licensed studio content well, and 3) small but steady growth of consumer product licensing (and potentially other) revenue can create a more dynamic company over time,” analyst Daniel Salmon said.
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