Goldman Sachs cuts Netflix ahead of its earnings report
- Goldman Sachs has cut its Netflix price target to $430 from $470, saying it expects lowered guidance from the company when it reports earnings on Tuesday.
- The bank says content spending is expected to pick up in the fourth quarter, which could lead to lower guidance from the company.
- Still, Goldman's analyst Heath Terry remains markedly bullish, and is well above Wall Street's average $380 target.
- Follow Netflix's stock price in real-time here.
Netflix has been one of the top performing stocks over the past year, but Wall Street is beginning to worry its growth may peter out.
Goldman Sachs on Monday cut its price target for the streaming stock to $430 from $470 - still a 26% upside to Monday's prices - citing an anticipated cut to 4th quarter guidance when Netflix reports third-quarter earnings on Tuesday.
"While 3rd party data has most investors anticipating net subscriber additions beyond management's July guidance, we believe that has been balanced by expectations for more conservative 4Q guidance," analyst Heath Terry, who remains above Wall Street's average price target and maintains a buy rating, said in a note to clients.
The note spurred a stock decline of about 3% in Netflix's stock, which is now down more than 20% from a record high of $423 set in July. However, Netflix shares are still up more than 70% in 2018, far outpacing the benchmark S&P 500.
Goldman expects Netflix to report growth of 850,000 domestic subscribers and 4.7 million internationally, topping the company's guidance of 650,000 and 4.35 million respectively, as "consensus continued to underestimate the "size of Netflix's global addressable market."
Still, the massive amounts - up to $8 billion - Netflix is in the process of spending on content this year is expected to ramp up in the final quarter of the year, eating into the company's bottom line. The price target cut also "reflects the contraction in broader internet multiples," according to Goldman Sachs, which now factors in a 60x forward earnings-to-EBITDA ratio in its model where it had previously used 65.
"Considering the robust line-up of originals for 4Q, even as it's likely not all have been announced as of yet, our forecast for 7.7 million total net adds, roughly in-line with consensus of 7.7 million and vs. 8.3 million in 4Q17, could prove conservative," said Terry.
Analysts polled by Bloomberg remain bullish on the stock, with an average price target of $380.
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