Wedbush analyst Michael Pachter weighed in today on the streaming television giant Netflix, Inc. (NASDAQ:NFLX), e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) and online radio giant Pandora Media Inc (NYSE:P), with mixed ratings and views.
Netflix reported mixed third-quarter results, posting $1.74 billion in Revenue, below the Street at $1.75 billion, while GAAP EPS of $0.07 matched the Street at $0.07. However, Netflix’s fourth-quarter Intl Sub Guide was better than expected and management reported no push-back on price increases.
In response, Pachter maintained an Underperform rating on Netflix shares, with a price target of $40, which implies a downside of 61% from current levels.
Pachter observed, “Management attributed the miss to “involuntary” churn as members failed to update their account details after their credit cards were replaced; the transition to chip-based credit cards will likely continue through the next few quarters. We think it is far more plausible that a combination of price increase and saturation drove churn. International subscriber growth was well above guidance, due to original programming and geographic expansion. Netflix stated that European price increases did not impact growth.”
“Investors appear to value Netflix by taking the leap of faith that once it reaches a much larger size, the company can raise price without losing many subscribers (we agree) and its price increase will drop largely to the bottom line (we disagree). Investors appear to believe that international subscribers will be as valuable as domestic subscribers (we disagree), and that aggregate international growth will generate consistent profitability, without regard to differing tax, regulatory and cultural environments (we disagree),” the analyst continued.
Bottom line, “We believe Netflix’s high valuation is unwarranted given the potential for slowing domestic growth coupled with decreasing international profitability.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Michael Pachter has a total average return of -1.6% and a 46.2% success rate. Pachter has a -53.8% average return when recommending NFLX, and is ranked #3166 out of 3773 analysts.
Out of the 31 analysts polled by TipRanks, 21 rate Netflix stock a Buy, 8 rate the stock a Hold and 2 recommend a Sell. With a return potential of 23.57%, the stock’s consensus target price stands at $125.63.
Analyst Michael Pachter reiterated an Outperform rating on Amazon shares, with a price target of $700, as the company will be reporting third-quarter results after the close on Thursday, October 22. Pachter has a 8% average return when recommending AMZN, according to TipRanks.
Pachter wrote, “We expect solid Q3 revenue from a successful Prime Day and Amazon Web Services (“AWS”) expansion. There may be upside to our revenue estimate of $25.5 billion vs. consensus of $24.9 billion and guidance for revenue of $23.3 – 25.5 billion. Our revenue estimate reflects strong retail sales including Amazon’s successful Prime Day; we estimate contribution of at least $1.2 billion in incremental sales in a single day. We expect operating income of $70 million, compared with guidance of $(480) – 70 million. We estimate EPS of $0.02 in Q3 compared with consensus for a loss of $0.14, driven in part by reinvestment.”
Bottom line, “Given the earnings upside delivered in Q2, management’s spending discipline, and the potential for continued gross margin expansion, we think our hypothetical FY:20 EPS of $20 is not only possible, but likely.”
Pandora Media Inc
The analyst also maintained an Outperform rating on shares of Pandora Media, with a price target of $26, as the company is scheduled to report its third-quarter earnings results on Thursday, October 22 after market close. Pachter has a 6.9% average return when recommending P, according to TipRanks.
Pachter wrote, “We expect Pandora results at the high end of guidance. We expect revenue of $315 million, Adjusted EBITDA of $32 million, and EPS of $0.12, vs. consensus of $313 million, $29 million, and $0.10, respectively. This compares with guidance for revenue of $310 – 315 million and for Adjusted EBITDA of $25 – 30 million. Our estimates assume listener hour growth of 12% and ad revenue growth of 34%. We expect increasing local advertising mix to drive revenue growth through 2018, as Pandora’s local sales force grows and its customers increasingly listen in the car.”
Bottom line, “We continue to think that Pandora users should grow, and we think it appropriate to value the company based on its number of users. We assign an 11x multiple to our $7 operating profit per user per year, and arrive at a value per user of $77. At $77 per user, 79.4 million users, cash and investments of $240 million, and a share count of 233 million, we arrive at our $26 price target. Despite our negative stance on the Ticketfly deal, we think that the overall risk-reward ratio remains favorable.”
Out of the 31 analysts polled by TipRanks, 21 rate Pandora Media stock a Buy, 9 rate the stock a Hold and 1 recommends a Sell. With a return potential of 18%, the stock’s consensus target price stands at $23.80.