Netflix’s ‘Seinfeld’ Rally Doesn’t Leave Much Room for Error

(Bloomberg) -- Netflix Inc. is back in favor, but many investors are skeptical that a strong slate of upcoming content, including the long-awaited debut of “Seinfeld,” will be enough to drive the kind of subscriber growth Wall Street is betting on. 

The shares closed at a record on Thursday for the first time since January. They rose a further 0.3% on Friday, posting a seventh straight positive session, as well as their 15th gain of the past 16 trading days. It’s a sharp turnaround for a stock that had languished this year through July as investors had questioned the outlook following last year’s pandemic-fueled surge. 

The advance coincides with growing optimism about the video-streaming company’s release schedule. “Seinfeld” will be available next month, and both Bank of America Corp. and KeyBanc Capital Markets see new seasons of “The Witcher,” “Cobra Kai,” and “Lucifer” as potential drivers of subscriber growth over the second half of the year. 

“While there’s a lot of enthusiasm about the shows coming down the pike, the consensus would seem to represent a pretty incredible increase,” said Dan Morgan, a senior portfolio manager at Synovus Trust Co. “There’s not a lot of room for error.”

Netflix will report third-quarter results next month, and forecast 3.5 million paid net additions for the quarter, compared with last quarter’s 1.54 million additions. Wall Street expects 3.7 million, according to a Bloomberg Consensus estimate. 

The company’s past two reports disappointed on user trends and were met with a negative reaction, contributing to the stock’s underperformance so far this year. Even with the recent spike, the 2021 gain of about 9% trails the 21% gain of the Nasdaq 100 Index, as well as the nearly 30% surge of the S&P 500 Communication Services Sector Index. 

“I don’t see many metrics that justify the stock’s jump,” said David Barse, chief executive officer of Xout Capital, which sold its position in Netflix following the most recent report. “I’m a fan of ‘Seinfeld,’ but we don’t know what it will mean for the company’s ability to drive subscribers.”

Netflix is about 2% below the average analyst price target, a sign there could be limited potential for further gains, especially in comparison to other names in the streaming-video space. Walt Disney Co., Discovery Inc., ViacomCBS Inc., and streaming platform Roku Inc. all have double-digit upside based on this metric.

However, more than 70% of the firms that track the stock recommend buying it, according to Bloomberg data. David Klink, senior equity analyst at Huntington Private Bank, is among those taking a positive view.

“We’re very optimistic on Netflix right now, and expect to be adding to positions going forward,” he said in a phone interview. “The hope is that it has turned the corner after some disappointing outlooks, but we’re seeing strong numbers across streaming, and expect that many of the users who joined because of the pandemic will stay, which is a long-term tailwind.”

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