Netflix Analysts Differ on Outlook as Stock Falls After Latest Earnings
Some Wall Street observers see upside for the online streaming provider, while one says "it will be increasingly more difficult to support its high valuation in the face of headwinds."
NEW YORK - Netflix's stock dropped 10 percent in early Tuesday trading, mirroring Monday after-hours activity after second-quarter results from the streaming video provider fell short of Wall Street expectations for subscriber growth and revenue.
Analysts on Tuesday gave mixed reviews of the company's outlook after the latest results, with some predicting upside for the stock despite near-term challenges.
For example, Netflix, led by CEO Reed Hastings, signaled that third-quarter subscriber momentum would take a hit due to a recently announced price hike.
And Wal-Mart stepped up its streaming competition with Netflix, announcing Tuesday that Walmart.com will integrate the retail giant's Vudu movie streaming site at Walmart.com/vudu. Said Edward Lichty, general manager of Vudu: "By incorporating digital movie content into the Walmart.com entertainment shopping experience, we're enabling customers to easily choose how they want to enjoy their entertainment content whether that be through a physical DVD, digital streaming or both."
As of 10am ET, Netflix shares were down 10 percent at $253.41. The stock closed down 5.2 percent at $266.91, giving the company a market value of $14 billion.
Goldman Sachs analyst Ingrid Chung on Tuesday reiterated her "buy" rating on Netflix, on which she has a six-months target price of $330. "We are still in the early innings of the international growth story and of seeing the true earnings power of the company," she argued.
Barclays Capital analyst Anthony DiClemente also maintained his bullish "overweight" rating on the stock with a $285 target, down from $315 previously. "We would take advantage of any weakness" in the stock, he wrote in a report. "We acknowledge the risk around the pricing change for hybrid plans, but given that 75 percent of new subs are on streaming-only, we continue to believe the price change is a strategic move to further drive streaming adoption."
Cowen analyst Jim Friedland has a "neutral" rating on the stock, but echoed that notion. "We believe Netflix has pricing power given the absence of a strong direct competitor in the subscription streaming or DVD-by-mail business," he said. "We do not expect that the recent price hike will disrupt growth in the U.S. beyond the third quarter."
However, Janney Montgomery Scott analyst Tony Wible reiterated his "sell" rating on Netflix. "We believe it will be increasingly more
difficult to support its high valuation in the face of headwinds tied to usage based billing, a deceleration in sub growth, and an increase in competition that will likely trigger an increase in content costs and subscriber acquisition costs," he said. "Furthermore, we are troubled by the company's streaming cost accounting and its limited disclosures in this increasingly volatile environment."