Netflix shed $17 billion in value on Thursday as Wall Street punished the leader in streaming media for announcing a day prior that it added only 2.7 million subscribers in the most recent quarter, far shy of the 5 million it had previously forecast.
In trading volume more than five times its daily average, the stock sunk 10 percent Thursday as analysts digested the news, which included the fact that Netflix lost U.S. subscribers for the first time since launching its streaming product, meaning that the entirety of its gain came from international territories.
Tuna Amobi of CFRA knocked $25 off of his 12-month price target to $400, while the stock closed Thursday at $325.15, down $37.29 for the day. He also cut his earnings estimates for both 2019 and 2020.
In a research note titled “Netflix: Doubters of the World Unite!,” Michael Nathanson of MoffettNathanson wrote, “While we have never doubted the quality of the Netflix product offering, we have recently had a hard time finding comfort in Netflix’s equity value.”
Nathanson’s target price is a lowly $220 on the stock, and on Thursday he slammed the discounted cash-flow models used by some analysts that look 10-15 years into the future as “bull shit.”
He said some bullish scenarios look “downright psychedelic,” considering that “U.S. subscriber adds turned negative on the back of $1 to $2 price hikes and an underwhelming content slate.”
The weak subscriber additions are more concerning, considering they come prior to competition coming from Disney and WarnerMedia, both of which have streamers coming soon.
“None of that affected the second quarter, but investors wonder what the effect of large content players in the market, pulling some content from Netflix, will be,” said Macquarie Capital analyst Tim Nollen.
On the bullish end, Guggenheim Securities analyst Michael Morris shrugged off the quarterly subscriber miss and instead focused on the streaming giant’s longer-term growth potential while keeping his “buy” recommendation on the stock. “We remain positive on the company’s global, multi-year outlook given comments around the strength of scalable, globalized content and improving profitability,” he said. “We believe bulls remain focused on long-term subscriber penetration regardless of quarterly bear-focused subscriber fluctuations.”
Concluded Morris: “Our confidence in Netflix fundamentals remains high, and company shares remain the most attractive ‘buy’ idea in our coverage universe on a multi-year secular basis.”
Multiple analysts, meanwhile, speculated that Netflix might go on a spending spree to acquire content businesses so that, eventually, it will look more like a traditional entertainment company rather than the new-media pioneer that it has been since its inception two decades ago.
London-based Liberum Capital analyst Ian Whittaker, for example, doesn’t cover Netflix, but in a report on Thursday said: “The obvious key strategic question for Netflix, which we don’t cover, is how it will sustain subscriber growth when major content providers are pulling their content off Netflix to boost their own OTT services.” His answer: “One obvious route for Netflix is to go and acquire content via M&A, and one candidate here should be ITV, with the U.K. being seen as a key content production market for global broadcasters.”
Meanwhile, Michael Pachter of Wedbush, a longtime bear on Netflix, set his price target at $188 and wrote that he remains “skeptical that Netflix can turn free-cash flow positive in the next five years.
He noted that Netflix has already penetrated the majority of above-median income households in the U.S., and with Disney and WarnerMedia on the horizon, he expects Netflix “to have difficulty meaningfully growing its domestic subscriber base.”