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'An unprecedented miss': Here's what Wall Street is saying about Netflix's disappointing quarter
'An unprecedented miss': Here's what Wall Street is saying about Netflix's disappointing quarter
Daniel StraussJul 18, 2019, 20:06 IST
Scoops Ahoy.Netflix
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Netflix plummeted as much as 12% on Thursday after reporting its subscriber growth fell to 2.7 million during the second quarter. Analysts expected the streaming giant to add around 5 million subscribers.
In addition, the company's US paid-subscriber base shrunk by 130,000, badly missing already-conservative estimates of 309,240 domestic additions.
The company attributed the slowdown to its content slate adding fewer subscribers than it anticipated, and the recent price hikes for Netflix's monthly service.
Here's what Wall Street analysts are saying after Netflix's huge subscriber miss.
The disappointing news was part of the streaming giant's second-quarter earnings report that came after the closing bell on Wednesday. In addition to the US decline, Netflix said it added 2.7 million global paid subscribers during the period, badly missing analyst estimates of 5 million.
"Our missed forecast was across all regions, but slightly more so in regions with price increases," Netflix said in an press release. "We don't believe competition was a factor since there wasn't a material change in the competitive landscape during Q2."
Netflix also said it struggled this quarter because its content slate drove less growth than the company anticipated. It's content offering included the third season of "Stranger Things," which accumulated over 40 million views according to the company.
Netflix hopes to offset its slow subscriber growth from the second quarter by adding 7 million paid members in the third quarter. Outside of subscribers, earnings per share of $0.60 beat expectations of $0.56 and revenue grew to $4.92 billion, falling just short of the $4.93 billion target from Wall Street.
Analysts who cover the company published new research on Thursday in reaction to Netflix's subscriber miss. Some said the fall in net additions in the second quarter was normal, while others doubted Netflix's path to profitability.
Here's what Wall Street analysts are saying about Netflix's tough second quarter:
JPMorgan: '2Q results are often volatile & NFLX had a number of moving pieces this quarter.'
Price target: $425
Rating: Overweight
"NFLX saw impact in both gross adds & churn, but we believe the relatively lighter content slate was the primary factor, along with pull- forward from what was a very strong 1Q (9.6M paid net adds)," analyst Doug Anmuth wrote in a research note on Thursday.
He added: "NFLX's adverse 2Q seasonality also weighed, & we believe price increases contributed to elevated churn levels."
Goldman Sachs: 'The correlation between content spend and subscriber net adds actually ticked up modestly'
Price Target: $420
Rating: Buy
"As Netflix's content investments, distribution partnerships and marketing spend drive subscriber growth significantly above consensus expectations and the company approaches an inflection point in cash profitability, we continue to believe shares of NFLX will significantly outperform." A team of analysts led by Health Terry said in a note to clients on Thursday.
Price target: $450
Rating: Overweight
"First, in the last three years, Netflix has missed its quarterly net additions once a year, so 2Q 19 may prove to be 2019's only miss. In all three of these cases it has outperformed meaningfully the following quarter," Benjamin Swinburne, an analyst at Morgan Stanley said in a note to clients on Thursday.
He added: "We expect continued strong ARPU growth, see continued leverage of content spend and marketing in 2020."
Guggenheim: 'Longer-term targets remain intact'
Price: $420
Rating: Buy
"Netflix missed 2Q19 consensus revenue and subscriber estimates due to pricing and content timing," analyst Michael Morris said in a report on Thursday.
He continued: "Netflix continues to refine the breadth and quality of its content by: 1) creating award-winning (117 Emmys in 2019) content that carries both local and cross-border appeal and 2) showcasing transparency and magnitude (The Perfect Date and Always Be My Maybe watched by 48mm and 32mm households, respectively, in first four weeks) of its viewership metrics to attract quality production talent and entice new customers."
Rosenblatt: 'This dip may not be like the old times'
Price target: $330
Rating: Neutral
"Our two concerns that this dip may not be like the old times are: (1) this is an unprecedented miss and (2) competition is on the horizon. Following the miss in 2Q, we are lowering our revenue, subscriber, and medium term FCF estimates," Mark Zgutowicz said in a research note to clients on Thursday.
"NFLX maintained its guidance for subscriber adds to grow in '19E over '18. We are below this guide because of the unparalleled competition Netflix will face globally when Disney+ launches in November and we believe will cause some near-term disruption."
Wedbush: 'We remain skeptical that Netflix can turn free cash flow positive in the next five years.'
Price target: $188
Rating: Underperform
"We expect content spending to trigger substantial cash burn for many years; notwithstanding four Netflix price increases in the last five years, cash burn continues to grow," Michael Pachter, an analyst at Wedbush, said in a report on Thursday. "Content migration and price hikes could cause a deceleration in subscriber growth, and consistently negative FCF makes DCF valuation impossible."
He continued: "Netflix has already penetrated the majority of its above median income household addressable market at 60 million subscribers, and with competition from Disney +, HBO Max and Comcast, we expect the company to have difficulty meaningfully growing its domestic subscriber base."
