Why the Top Analysts Have Mixed Views on Netflix Stock

NFLX stock has been put through the wringer recently

By Julie Lamb, Writer, TipRanks

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Questions Persist on NFLX Stock's Content Strategy After Q2 Subscriber Miss

Source: Vivian D Nguyen via Flickr (Modified)

To say investors are not upbeat on video streaming king Netflix (NASDAQ:NFLX) is the understatement of Wall Street today. NFLX stock was diving 14% in after-hours trading last night. The culprit behind Netflix’s bearish stampede? Lackluster new subscriber numbers for the second quarter.
Here we can see the NFLX stock trajectory on a five day basis:

NFLX stock 5 days

NFLX Subscriber Growth Misses Mark

It’s no surprise Netflix stock is falling; Deutsche Bank had stoked fears on the Street of underwhelming subscriber numbers that already led the stock to dip 4% on the Friday. Now all eyes are putting this tech giant in the hot seat for a metric that, until now, has usually been a strong suit for Netflix.

“We had a strong but not stellar Q2,” Netflix executives explained to shareholders in a quarterly letter. For the second quarter, Netflix delivered the 5.2 million subscribers it did this time in 2017. Yet, when the company called for growth of 1 million to 6.2 million subscribers, it’s easy to see why investors are irked.

Against analyst forecasts calling for 947,000 net sub adds in the U.S. and 5.05 million abroad, Netflix numbers are not looking so “stellar” for the third quarter either. NFLX management set the guide for 650,000 net adds domestically and 4.35 million internationally.

The question racing through the Street: Is now the time to run for the hills, or should you take advantage of share weakness? TipRanks tracks the activity of over 4,800 Wall Street analysts. This enables us to get the latest insights on what top analysts are saying about NFLX stock right now.  Here, we turn to the Netflix stock page on TipRanks to scope the latest ratings from four to five-star analysts.

The screenshot of the NFLX stock page shows a mix of Street-wide sentiment — buy ratings balanced with hold ratings and even one new bear in the mix.

The Bullish Case for NFLX Stock

Notably, Netflix stock has had a massive year, skyrocketing nearly 118% in year-over-year growth; even factoring in this morning’s crash. When Credit Suisse’s Douglas Mitchelson assumed coverage on NFLX, July 11, he upgraded it from a Neutral to an Outperform rating. After all, Mitchelson likens Netflix’s ability to rise above its competitors to that of HBO, the “first U.S. premium pay service.”

This video streaming giant is primed to “enjoy unchallenged leadership and disproportional scale benefits,” bets the bull. Not only did Mitchelson join the NFLX stock bullish camp, he also lifts the price target from $200 up to $500 (42% upside potential). The analyst reaps 41.3% in average profits on the stock when recommending Netflix.

Even one of Wall Street’s top 100 analysts Doug Anmuth of J.P. Morgan cheers that this giant “may well be the best global, secular growth story in tech.” Look for any earnings-impacted pullback in the stock to serve up a bullish advantage. Anmuth rates NFLX Overweight and realizes 54.6% in average profits on the stock.

The Sidelined

Top five-star analyst Eric Sheridan of UBS sounds off for the cautious on Netflix, having stepped to the sidelines a week before earnings. Pointing to steep valuation, the analyst downgraded Netflix stock from a “Buy” to a “Hold” rating. However, he also dialed up the price target from $375 to $425 (21% upside potential).

Long-term, Sheridan is positive on Netflix’s market opportunity, writing: “We believe Netflix’s core competencies in both content & tech should drive a virtuous circle of greater subs and increased viewing time, broadening its moat for global leadership in SVOD [subscription video on demand].”

Sheridan’s key reason for the downgrade was valuation, which after the post-earnings crash might suddenly look better. “It’s all priced in. … While we remain constructive on the business LT [long-term], we view the stock as a less compelling (& roughly equal) risk/reward at current levels,” contends the analyst.

The Bearish Case

Bears would argue Matthew Harrigan of Buckingham played it smart, downgrading NFLX stock from “Neutral” to “Underperform” right before the earnings crash. The four-star analyst scoops 26% in average profits when recommending Netflix.

Just yesterday, Harrigan set a $333 price target on the streaming giant, which after Netflix stock’s nosedive, points to 5% in downside potential. Harrigan believed bullish expectations were baked into the share price. Moreover, a cutthroat worldwide market makes it challenging for NFLX to boost subscription costs: “pricing power is limited in high growth.”

Harrigan warns, “As TV goes all- IP delivery globally, and Netflix soon loses much outside content, it will have to increasingly differentiate itself through in-house production as its user experience advantage erodes.” The bear’s advice? Run.

The Verdict: What Next?

Bottom Line on Netflix Stock

In the bigger picture, NFLX stock has a cautiously optimistic Moderate Buy rating from the Street’s top analysts.

Netflix stock has received 21 buy ratings in the last three months. This is versus 9 hold ratings and 1 sell rating. Consider which analysts are betting in Netflix’s corner. For instance, Mark Mahaney of RBC Capital is ranked No. 10 on Wall Street and has tossed a bullish hat into the ring on Netflix.

Ultimately, the Street leans toward the bulls on NFLX’s outlook — albeit with more subdued expectations. The $401 average price target of best-performing analysts suggests marginal upside potential of 6%.

TipRanks.com offers exclusive insights for investors by focusing on the moves of experts: Analysts, Insiders, Bloggers, Hedge Fund Managers and more. See what the experts are saying about your stocks now at TipRanks.com. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.


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Article printed from InvestorPlace Media, https://investorplace.com/2018/07/why-the-top-analysts-have-mixed-views-on-netflix-stock/.

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