By Barbara Kollmeyer and Emily Bary
An earlier version of this story misstated the new rating held by KeyBanc analysts. It has been corrected.
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How about a slew of Wall Street analysts racing to downgrade shares of streaming giant Netflix on Friday, after its deeply disappointing outlook for new subscribers.
Netflix /zigman2/quotes/202353025/composite NFLX -3.79% shares were off 20.1% in midday Friday trading and on track for their steepest single-day percentage decline since July 25, 2012, when the stock lost 25.0%. Investors dumped the stock after the company issued a downbeat subscriber forecast for the current quarter.
Friday’s selloff is lopping roughly $50 billion off Netflix’s market value.
The bleak view on subscribers triggered losses for rivals as well, with shares of Disney+ and Hulu owner Walt Disney /zigman2/quotes/203410047/composite DIS -4.01% , down over 4% and streaming device maker Roku /zigman2/quotes/205087179/composite ROKU -13.74% off more than 5%.
“Net, we see few catalysts,” said KeyBanc Capital Markets analysts Justin Patterson and Sergio Segura, who cut their rating on Netflix shares to sector weight from overweight.
Despite a stronger content slate, gross subscriber additions remain “soft” after pandemic-fueled acceleration seen in the first half of 2020, said the KeyBanc analysts. Since the second quarter has historically been slow for Netflix, the company faces pressure to dial up the momentum later in the year so that it can achieve a reasonable annual total.
KeyBanc sees the prospect of declining operating income and earnings-per-share growth through the third quarter of 2022. With the company’s new growth profile, investors may come to pay more attention to Netflix’s price-to-earnings multiple, which makes the “risk/reward” balance less attractive, in their view.
Analysts at Morgan Stanley also commented on how Netflix’s improved programming lineup doesn’t seem to be helping its subscriber momentum. While they were willing to give the company a bit of a pass last year given pandemic-related production shutdowns, they now see Netflix producing content at targeted levels but without the desired subscriber payoff.
The first-quarter outlook “implies this ramp in content is not translating into the 20-25 million net adds we have underwritten historically,” they wrote, while downgrading the stock to equal-weight from overweight and cutting their price target to $450 from $700.
Elsewhere on Wall Street, Barclays analysts dropped their rating on Netflix to equal weight from overweight, and they slashed their price target by 37% to $425 from $675 a share.
“While Netflix performance in Q4 was roughly in line with guidance, the company’s outlook in many ways played almost perfectly into the bear thesis on the stock going into the quarter,” said Barclays analysts Kannan Venkateshwar, David Joyce and Ross Sandler.
In addition to giving a weak outlook for subscriber numbers, the company expects no margin growth in 2022. “While some slowdown in margin growth was expected in ’22 because of the outperformance over the last couple of years, the degree of slowdown guided to is much worse than expected,” he said.
“Overall therefore, based on company guidance, 2022 is effectively shaping up to be the company’s slowest year of growth on most KPIs [key performance indicators],” said the Barclays team.
Evercore analysts cut their rating to in line from outperform, dropping their price target to $525 from $710.