Netflix’s forecasts for the second quarter were weaker than expected, and that shook Wall Street.
On Monday, the company reported first quarter profits that topped analysts’ estimates, and revenues that were roughly in line with expectations.
But that was not enough to stop a 10% plunge in the shares in after-hours trading.
The video-streaming company said it added 2.23 million US subscribers in the first three months of the year, and 4.51 million internationally. Both beat estimates.
But its guidance for 2 million net additions outside the US during the second quarter fell short of the estimate for 3.45 million.
Some analysts have lowered their price targets on the company’s stock. Meanwhile, others maintain that Netflix will continue to dominate the competition, even as it raises prices.
Here’s a roundup of where they stand:
Price Target: $143
Comment: “Netflix shares hovered around the $1 level in 2002, the $6 level in 2009, and the $100 level at tonight’s [i.e. Monday after earnings] last after-hours price (adjusting for splits). Many of the same analysts, investors, and media observers who have been skeptical of Netflix’s prospects at levels that were pennies on today’s $NFLX dollar are still negative on the company today, and we think they will continue to be proven wrong.”
RBC Capital Markets: BULLISH
Price Target: $140
Comment: “We continue to believe that Netflix’s value proposition has universal appeal – as demonstrated by its success in North America, Latin America, and Western Europe. So we expect the NFLX International Sub buildout to be substantial, especially as the company localizes content, language, and payment options.”
Raymond James: BULLISH
Price Target: $130
Comment: “…We find three reasons to buy shares on weakness: 1) original content is still driving U.S. growth; 2) marketing is a source of leverage; and 3) Int’l is moving closer to breakeven.”
Price Target: $125 (cut from $130)
Comment: “Investor focus is now likely to shift to what 3Q and 2H international growth trend will look like; some may overshoot to the downside in their new models, as seasonal strength in the second half of the year may be overlooked owing to 2Q’s difficult YoY comparison.”
“While we are moderating our international net addition trajectory, we believe a better, more normalized pattern of subscriber growth is likely for 2H16.”
Price Target: $135 (cut from $155)
Comment: “For 2Q16, we now estimate Int’l net adds of 2.2MM, with the bulk of the reduction from ROW and ’15 launches. For ’16, we now estimate Int’l net adds of 12.7MM vs. 14.5MM prior. For the US biz, we now estimate 2Q16 net adds of 517K (vs. 630K prior), and 5.05MM vs. (4.7MM prior) for 2016 given the 1Q16 beat, as the US biz, the focal point of the pre-print discussion appears on solid footing.”
“Longer-term we lowered Int’l sub forecast to 110MM in ’21 (vs. 117MM prior), while US is up slightly.”
Price Target: $147
Comment: “With revenue and costs on track and U.S. maturity /competition concerns laid to rest, at least for now, investor focus will likely shift squarely to int’l growth. If we are gauging 2Q trends properly, int’l net adds will aggressively ramp in 3Q16, assuaging any lingering concerns that come from the 2Q guide.”
SunTrust Robinson Humphrey: NEUTRAL
Price Target: $111.51
S&P Global Market Intelligence: BULLISH
Price Target: $120 (cut from $128)
Comment: “NFLX reaffirmed its targeted long-term margins, even as Q2 guidance was notably muted, amid an imminent U.S. price change. With ’16 viewed as a transitional investment year for full global expansion, NFLX sees sustained global profits by ’17”
Price Target: $106 (cut from $116)
Comment: “While we continue to have a favorable long-term view of Netflix, we view the catalyst/setup factors this year as less favorable and the valuation/upside potential also as less favorable than for others in our coverage, especially with the likely negative cash flow for at least the next two years.”
“We maintain our Neutral rating and lower our target to $106 given our slightly reduced forecasts, which are due mainly to the lower-than-expected int’l sub guide.”
Price Target: $110
Comment: “Management guides Q2 US sub additions to 500k (we reduced our estimate to 460k in our preview note yesterday) and International to 2m (we were at 3.9m), partly on tough Australia/NZ launch comps last year. In the US, ‘ungrandfathering’ will lead to some churn – more than 50% of Netflix US subs are paying $7.99 or $8.99, and this will rise to $9.99, at a time when there is so much more OTT competition.”
Price Target: $108 (cut from $115)
Comment: “Slowing U.S. growth has been a recent concern, with the international shortfall the bigger surprise. While positive on the company’s overall positioning, we remain cautious on slowing U.S. growth, high international expectations, steep free cash flow losses and competitive risks.”
William Blair: NEUTRAL
Rating: Market Perform
Price Target: N/A
Comment: “The near-term sell-off may likely prove to be overdone, as we expect Netflix to become a long-term, dominant winner in the shift away from linear TV to internet delivered video.
However, in the near term, Netflix is “un-grandfathering” previous $7.99 and $8.99 per month (primarily domestic) members to $9.99 for high-definition, two-screen viewing … While we believe Netflix has long-term pricing power and a disproportionate amount of U.S. members will likely opt in to the $9.99 plan, it could create a near-term headwind or unnecessary ‘noise’ and investors may have a better near-term entry point, in our view.”
Credit Suisse: NEUTRAL
Price Target: $116 (cut from $127)
Comment: “What changes today is not necessarily Netflix’s long term addressable opportunity but rather its growth trajectory to one less steep as the company enters a normalized period of growth following a broader global launch in 1Q16.”
Price Target: $109 (cut from $120)
Comment: “We believe that increasing competition, possible greater churn from un-grandfathering older subs to higher price plans, and challenges with certain new non-English markets could keep the stock range bound.”
Rating: Market Perform
Price Target: $104 (raised from $100)
Comment: “Netflix offset a constructive 1Q16 earnings report post-close April 18 with the introduction of 2Q16 guidance for a surprisingly steep deceleration in subscriber growth, particularly internationally. This company’s track record in recent quarters is somewhat (not entirely) consistent with its professed desire to guide accurately (vs. conservatively).
So we find the conclusion hard to escape: 1Q16 is close to peak subscriber growth, and from here sub growth looks likely to decelerate, a situation that we see capping the near-term upside argument for the equity.”
Dougherty & Company: NEUTRAL
Price Target: N/A
Comment: “We don’t doubt the company’s ability to keep competition at bay as it cranks up its original content engine and races into new markets. However, the path to respectable profitability remains difficult to determine, making it difficult to rationalize the current valuation.
The disappointing guidance likely causes the stock to retrace its recent gains to a level that could be an attractive entry point. However, we are maintaining our Neutral rating until we have better visibility on the resumption of higher growth in international subs and some insight on how margins scale once the company takes its foot off the accelerator.”
- Chris Hondros/Getty