Netflix Stock Targets Cut as Analysts Laud International, Cite Near-Term U.S. Issues

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Netflix CEO Reed Hastings

Despite a "domestic sub misfire," one Wall Street observer says he has "a continued belief in international opportunity and durable consumer appeal."

Following Netflix's slightly lower-than-expected third-quarter earnings and U.S. subscriber growth late Wednesday, Wall Street on Thursday chimed in on how foreign-currency headwinds and domestic challenges, mainly a transition to chip-based credit cards, affected results and updated their outlooks for the streaming giant.

Some analysts cut their price targets on the stock of Netflix, led by CEO Reed Hastings.

FBR analyst Barton Crockett maintained his “outperform” rating on Netflix shares, but trimmed his price target by $4 to $138. "Netflix's third quarter featured international strength mitigating a domestic sub misfire," he wrote in a report. "The domestic sub shortfall was blamed to a large degree on the banking system's move to chip-based credit cards. We were initially skeptical but, in the end, see the explanation as credible."

With the card transition issues expected to further affect trends in the coming months, he said his lower price target "mainly reflects the near-term sub/earnings variances, but a continued belief in international opportunity and durable consumer appeal."

Credit Suisse analyst Stephen Ju also lowered his price target by $6 to $124 and maintained his “neutral” stock rating. "Citing modestly higher churn due to industry transition to chip-based credit/debit cards as well as continued currency headwinds, Netflix reported weaker-than-expected third-quarter [results] ... which also filtered thru to fourth-quarter guidance," he wrote.

But he added: "We note that these exogenous headwinds do not in any way alter Netflix's consumer value proposition and hence should not alter its adoption path. We therefore modeled a modest headwind to near-term net adds, but baked in a recovery for the second half of 2016." He explained his "neutral" stance on the stock with the company's current valuation.

Guggenheim Partners analyst Michael Morris continues to rate Netflix's stock a “buy” with a price target of $160. He said international subscriber growth and fourth-quarter guidance for it were both ahead of his forecasts, but noted that "foreign exchange is likely to drag on international average revenue per user again in the fourth quarter."

Cowen analyst John Blackledge in the title of his report told investors to "Ignore the Static," adding: "Netflix Streams Another Solid Quarter." He reiterated his “outperform” rating and $154 price target.

"Our long-term Netflix sub forecast is virtually unchanged," he said. "We expect U.S. subs to ramp from 45 million to 70 million 2015-2020 (versus 45.6 million to 70.2 million prior) and international ramping from 29.8 million to 104.6 million 2015-2020 (versus 30.0 million to 104.6 million)."


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