By Barbara Kollmeyer and Emily Bary
“There are a slew of explanations – heightened near-term churn due to the U.S. price increase (plausible), macro challenges in Latam (plausible), rising competition (possible but hard to specifically point to), a very late Q1 content slate releasewith Bridgerton (arguable), Omicron uncertainty (why not), market maturity (possible), and changed seasonality with the elimination of free trials in most regions (possible),” said a team of analysts led by Mark Mahaney.
“But the negative inflection implied by the Q1 guidance is very significant,” they said.
Netflix’s stock earned one upgrade following the disappointing results, though it wasn’t a ringing endorsement. Benchmark’s Matthew Harrigan, who has had a bearish position on Netflix for the past two years, lifted his rating to hold from sell Friday.
“Netflix stock should find a floor as the $405 after market price discounts both member growth deceleration and margin underachievement,” Harrigan wrote in a note to clients. He “vacated” his previous $470 stock price target, but said he sees fair value for the stock at $450.
Still, despite the rush of downgrades, more than half of the analysts tracked by FactSet who cover Netflix’s stock remain bullish on the name. One, Jeff Wlodarczak of Pivotal Research Group, said he still liked the company’s story over the medium and long terms, even though he sees a rockier stretch more immediately.
“As for the stock, it would not surprise us even off a substantial decline in the pre-market, that NFLX stock may be dead money amidst muted results in 1Q and the seasonally weak 2Q and the likely need to prove out that there is still significant growth left in streaming,” he wrote.
But ultimately he thinks Netflix’s “flywheel” remains intact, “just operating at a slower pace given the massive pull forward of demand enabled by pandemic shutdowns.”
Wlodarczak has a buy rating on the stock, though he decreased his target to $550 from $750.
Another analyst, Daniel Salmon of BMO Capital Markets, suggested that the company should consider thinking creatively about new revenue streams, such as licensing older shows that it owns to other streaming platforms.
By doing so, the company would essentially “reverse engineer ad-supported NFLX on others’ platforms” and expose its content to new viewers, which could ultimately help it attract more subscribers of its own.
Salmon rates the stock at outperform but cut his target price to $650 from $700.