Analysts Reiterate Doubts About Netflix as Stock Drops Sharply
Netflix's stock got clobbered in early Tuesday trading, dropping more than 10 percent following a lower subscriber forecast for the current quarter and news that it will spend money on the launch in another European country late this year.
Several analysts reiterated "neutral" ratings on the stock, preferring to see how positive and negative news will play out over time.
As of 10:05 a.m. ET, Netflix shares were down 13.4 percent at $88.15, closer to their 52-week low of $62.37 than their high of $304.79.
"First-quarter results were good, but, given the subscriber guidance for the second quarter, the stated goal of 7.2 million net streaming adds in 2012 may seem ambitious," said Susquehanna Financial Group's Vasily Karasyov, who has a "neutral" rating and $95 target price on the stock of the streaming video giant.
Lazard Capital Markets analyst Barton Crockett's report summed up the double-edged sword that was Netflix's earnings update in this title: "We give the first quarter a B-, finding defeat in the jaws ofvictory."
Retaining his "neutral" rating, he said that "noise trumps positives," such as "rebounding sub growth, earnings upside and encouraging (subscriber) uptake in U.K./Ireland."
Netflix "buried these positives in guidance for greater seasonality that looks scarier than it has tobecause of a stubborn refusal to provide gross add and churn data," he criticized. "Netflix alsosaid it plans to reverse fledgling profits this year with a new international launch in the fourth quarter amid talk of more spending and multiple quarters of profitless growth."
Netflix management didn't say which international market would follow Latin America, but Wall Street observers suggested that Spain - or France or Germany - could be a logical next step for the company.
B. Riley & Co. analyst Selin Roberts highlighted "our concerns over competitive risks, especially from new cable offerings" as a key reason for a continued "neutral" rating and price target reduction from $100 to $80 on the company's stock.
"Netflix announced another European launch for the fourth quarter that will reduce [the quarter's] and early 2013 profitability - potentially just as domestic competition intensifies," the analyst wrote.
Amid some of these open questions and concerns, Karyasov said only the next earnings update will give more insight into Netflix's business trends. "The June quarter earnings is when we will know if management’s argument on the increasing seasonality in the net adds is playing out," he said. "In the meantime, we are sticking with our forecast of 5 million adds [this year]."