Netflix Bulls on Wall Street Aren’t Giving Up on the Stock Just Yet
(Bloomberg) -- Netflix Inc.’s disappointing second-quarter report has raised surprisingly few alarms on Wall Street even as the shares tumbled as much as 14 percent, their biggest drop in two years. Analysts at Bernstein say it was inevitable that the streaming company would eventually fall short of subscriber expectations, and Wells Fargo says “subscriber and pricing trends remain healthy” despite quarterly volatility. Imperial Capital, the stock’s biggest bull, maintained its price target. Deutsche Bank took a more cautious tone, cutting its rating to hold and saying upside for Netflix shares is limited for the next year as subscriber growth slows.
Here’s what some analysts are saying about the report:
Wells Fargo, Ken Sena
Wells Fargo sees “no change in course” for Netflix even with the weaker-than-expected subscriber growth in the second-quarter results and third-quarter forecast.
“Although this quarter’s results were less positive, we nevertheless believe in Netflix’s ability to generate meaningful synergies from its global/originals strategies and in the significant long-term pricing power that its model holds.”
The second-quarter shortfall “was split evenly between domestic and international, with the company citing lower levels of gross adds as the primary driver, partially owing to the lack of major new content releases in the quarter.”
“We see all the same underlying growth drivers and secular tailwinds to still be squarely in place.”
Outperform, raises price target to $385 from $370
Bernstein, Todd Juenger
“Everybody knew the day would someday come when Netflix would fall short of quarterly subscriber expectations.”
“For those who wanted an entry point, here it is.”
“Frustrated bears may be enjoying some long-awaited schadenfreude, but unless one was short before the print, there’s probably nothing to do now. Pressing a short (or underweight), betting against the winning service in a huge global market opportunity, is a brave move.”
Outperform, increases price target to $434 from $372 to reflect new target methodology
Imperial Capital, David Miller
Miller maintained his $503 price target, the highest among analysts surveyed by Bloomberg. He says Netflix’s third-quarter forecast is probably conservative after the company missed its own subscriber forecasts for the first time in five quarters.
“We are measurably decreasing our full-year 2018 revenue and Ebitda estimates” to account for the second-quarter results and third-quarter forecast. Imperial’s non-GAAP earnings per share estimate for the year is unchanged.
“For FY19, our estimates actually improve to account for higher ASP (average selling price), mitigated somewhat by currency adjustments and higher SG&A.”
Reiterates outperform rating
Evercore ISI, Anthony DiClemente
“Subscriber trends noticeably softened during a second quarter which we previously noted may have felt some impact from the FIFA World Cup.”
DiClemente says Netflix’s ability to deliver a solid third-quarter performance will be key to sentiment as the debate about the stock valuation continues.
“Importantly, our opinions on longer-term financial targets for the company remain little-changed.”
Maintains in-line rating, $320 price target
Piper Jaffray, Michael Olson
The second-quarter subscriber miss was affected by “fewer content releases and distraction from the World Cup.”
Olson notes that the last time Netflix reported a surprising second-quarter miss and lower-than-expected third-quarter forecast was in 2016, “which was followed by solid upside.”
“Not every growth story is on a perfect ‘up-and-to-the-right’ trajectory.”
“There will be increasing competition and unforeseen hurdles, but we think Netflix has reached ‘escape velocity,’ " Olson says. “As the consumer content dollar shifts from traditional TV to internet delivery, we believe the market will support multiple players, with Netflix leading the way.”
Overweight, $420 price target
Deutsche Bank, Bryan Kraft
Netflix has limited upside over the next year amid slower-than-expected subscriber growth trends and after the shares have roughly doubled since the beginning of the year.
The question will be whether subscriber trends pick up in the fourth quarter, when Netflix rolls out “a disproportionate amount” of its original content planned for this year.
Netflix still has “a long runway for strong international growth, albeit slower than our previous outlook.” Kraft ultimately still sees the stock doubling to $700 by 2025.
Cuts rating to hold from buy, lowers price target to $350 from $360
GBH Insights, Daniel Ives
The earnings report was a “near term gut punch to the Netflix bull thesis.”
“We believe Netflix has a number of growth levers which should fuel the company’s next phase of strategic penetration among both U.S. and especially international consumers despite some softness” in the second quarter.
“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.”
Rates stock highly attractive, $500 price target
Bloomberg Intelligence, Geetha Ranganathan & Paul Sweeney
“Subscriber miss will exacerbate growth fears and raise questions about whether the service can regain subscriber momentum.”
The weak forecast “may be a sign that the company’s virtuous cycle (increased content spending fueling subscriber growth) could lose its luster.”
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