Netflix's Stock Drops More Than 10 Percent After Disappointing Subscriber Guidance
Several analysts reduce their forecasts and price targets on the stock, but one says it is "now relatively safer to own."
Netflix's stock dropped in early Wednesday trading as Wall Street analysts pored over the implications of weaker third-quarter U.S. subscriber momentum and reduced guidance by the online streaming firm.
As of 9:35am ET, the stock was down 11.6 percent at $60.30 after falling below the $60 mark in the first few minutes of trading. Over the past year, the stock has traded as low as $52.81 and as high as $133.43.
Netflix, led by CEO Reed Hastings, on Tuesday night posted modestly better than expected financials. But investors focused on weaker sub trends and the decreased full-year sub growth guidance of 4.7 million-5.3 million, compared with as high as 7 million previously.
Credit Suisse analyst Stephen Ju on Wednesday cut his price target on Netflix's stock from $100 to $80, but maintained his "outperform" rating and entitled his report: "Bad News Out of the Way, and Still Investing for the Future."
"While we do not believe investors were realistically expecting 7 million subscribers to be added this year in the U.S., the new range for the year and for the fourth quarter are nevertheless below expectations,” he wrote. "That said, the overhang surrounding the need to lower guidance dissipates, and Netflix shares are now relatively safer to own."
Janney Montgomery Scott analyst Tony Wible in his report spoke of "the multi- billion dollar bet," namely whether Netflix is seeing a "seasonal or secular slowdown." He cut his earnings estimates and fair value estimate for the stock to $48 from $53.
Maintaining his "neutral" rating, Wible said: "Netflix faces risks tied to competition, a slowdown in sub growth, global expansion that will offset profitability for years and cannibalization of the high-margin DVD business. This is tempered by studio dependency, lack of competition, slower declines in DVD...potential M&A and cost rationalization."
Edward Williams, analyst at BMO Capital, maintained his "market perform" rating on Netflix. "We continue to believe profitability over the next few years will be hampered as the company further expands into new international markets," he wrote.
Lazard Capital Markets analyst Barton Crockett expressed longer-term cash concerns in maintaining his "neutral" rating on Netflix's stock. "The step up in originals next year will cause cash burn as cash is spent upfront, and shows amortized over years," he wrote. "We see this driving cash from near $800 million now to nearly $450 million next year. Netflix says it does not need to raise cash. But its recent slip-up in guidance and willingness to spend creates risk that this view changes."
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