Netflix Stock Price Targets Cut as Analysts Debate International Outlook
"Netflix is now adding localized content and more languages to rest of the world markets, which will improve the value proposition and sub penetration," says one Wall Street observer about reduced near-term international sub guidance.
Wall Street analysts Tuesday cut their price targets for Netflix's stock after the streaming giant, led by CEO Reed Hastings, reported its latest figures and reduced its international subscriber forecast after the market close Monday.
The stock dropped in Monday after-hours and was down 7 percent in early trading Tuesday.
Drexel Hamilton analyst Tony Wible in a morning note reduced his stock price target by $30 to $120, but maintained his "buy" rating on Netflix shares. "International sub guidance was lower and reflects a surprising sequential drop in net additions," he wrote in a report, but also highlighted: "The slowdown is not affecting earnings, as international losses are improving. Furthermore, U.S. price elasticity, which is the largest long-term growth driver, looks relatively healthy in advance of the second-quarter price increases."
Concluded Wible: "We are lowering our [stock price] target to reflect a lower international total addressable market, but maintain our "buy" as Netflix should benefit from TV's vicious cycle and the rise in cord cutting homes."
Cowen analyst John Blackledge, who has an "outperform" rating on Netflix's stock, lowered his price target by $20 to $135. For the second quarter, he now estimates international net subscriber additions of 2.2 million, bringing his forecast for full-year 2016 international gains to 12.7 million, down from 14.5 million.
"Netflix's second-quarter U.S. sub guide was solid given the fear of higher churn due to the upcoming pricing increase, offset by weaker International sub guidance," he explained. While he called the international outlook "disappointing," the analyst highlighted: "Netflix is now adding localized content and more languages to rest of the world markets, which will improve the value proposition and sub penetration."
Guggenheim Securities analyst Michael Morris on Tuesday trimmed his price target by $10 to $150 due to lower international subscriber growth trajectory than he had previously forecast, but maintained his "buy" rating. "We believe Netflix is in an early investment phase," he explained. "The company’s roughly $46 billion market capitalization remains low relative to the global growth opportunity presented by the Netflix consumer value proposition."
Credit Suisse analyst Stephen Ju lowered his price target on Netflix shares from $127 to $116, writing: "Citing tougher comps versus what appeared to have been a surge of sign-ups seen in new territories (particularly Australia and New Zealand), Netflix provided lower-than-expected sub growth guidance for international for the second quarter. What changes...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." He maintained his "neutral" rating on the stock.
MoffettNathanson analyst Michael Nathanson, meanwhile, wrote about the earnings and guidance update: "Sometimes business models are not as linear as analysts’ Excel models would have us believe. First-quarter results and second-quarter guidance underscore both the opportunities and the challenges Netflix faces as the company iterates its operations. We remain cautious due to valuation, its domestic margin structure and a more skeptical view of the company’s international roll-out."