Netflix Woes Continue as Analysts Start to Sour on Once-Hot Stock

Wall Street reactions run the gamut, but several rein in their targets for the streaming giant

Analysts who cover Netflix are grappling with a surprising 24 hours for the streaming-video giant, with reactions on Tuesday varying wildly.

On Monday, the company warned investors that new members would not be signing up at the pace they had been in past years, while less than a day earlier rival Amazon launched a directly competitive version of its own streaming-video service, Prime Video.

Shares were down 11 percent at $96.73 in midday trading.

Several analysts, including Guggenheim Securities’ Michael Morris, lowered their targets for the level they predict Netflix stock will hit in the next year. 

Morris, who continues to recommend investors buy Netflix stock, pared his expectation for the company’s share price as he said it was tough to reconcile Netflix’s upbeat long-term outlook with its modest expectations for subscriber growth in the current quarter.

Analysts at Cowen, Credit Suisse and Drexel Hamilton also lowered price targets for the company’s shares.

Among analysts recommending shareholders stick with the stock, BTIG analyst Rich Greenfield took Netflix’s outlook for 500,000 new domestic members as a good sign, even though that number would be the company’s lowest in more than three years.

“If anything, Netflix’s success in driving penetration in the most competitive media market in the world, the U.S., strengthens our confidence in their ability to execute globally,” he wrote in a note.

RBC’s Mark Mahaney also wasn’t phased by the weak outlook that unsettled investors, calling it a function of “imperfect timing.” Netflix executives noted Monday that the company is dealing with a difficult comparison in new members because of its launch in Australia and New Zealand a year earlier, which caused a surge in sign-ups thanks to pent-up demand.

“We continue to believe that Netflix’s value proposition has universal appeal,” he said.

But Michael Pachter, a long-time Netflix bear at Wedbush Securities, said the current share price doesn’t factor in growing competition from Amazon.

“Once it announced a standalone service, Amazon declared war on Netflix,” he wrote.

The latest results seemed to mark the peak of the company’s subscriber growth, and that the momentum looks likely to slow from here, Barton Crockett, an FBR analyst, said in a note, adding that Netflix’s appeal with people other than the rich may be under threat.

“Netflix argues that more competition just accelerates consumer adoption of streaming,” he wrote. But Crockett said middle and lower-income consumers will tend to pick only one service, which means they will choose between Netflix and new entrants. “Amazon, in particular, looks to be improving enormously,” he added.

MoffettNathanson analyst Michael Nathanson said he was more skeptical about Netflix’s international expansion. This year, the company launched in virtually every country it didn’t already operate in, except China.

He called it “a quarter that makes you stop and think.”