Proprietary data on Twitter Inc (NYSE:TWTR) user trends and upcoming Q2 earnings for Netflix, Inc. (NASDAQ:NFLX) generate buzz from two analysts. While one believes correct execution from Twitter’s management will leverage the company’s strengths amid macro challenges, the other drops Netflix like a hot potato due to a competitive threat from Amazon.
Canaccord analyst Michael Graham commented on Twitter following his firm’s data check on engagement trends. The analyst believes that Twitter had a relatively successful quarter, as the stock has increased 20% since its Q1 earnings selloff. However, according to the analyst’s data check, Q2 MAU growth, “the most important metric for the stock,” remained flat or displayed only modest growth across 75 countries. Additionally, he notes that the company may provide conservative guidance for Q3 due to the Brexit and resulting currency concerns as well as the transition phase of the company’s ad offerings.
The analyst notes that management’s announcements of a timeline to improve features in Q1 aligns with his “[focus] on the potential for product updates to make Twitter easier to use and…increase engagement and user growth.” However, the analyst states that recently, new product launches have been slow and insignificant. The analyst is also cautious regarding turnover in management. As a result, the analyst believes that “Q2/Q3 still will be rough from a product pace perspective.”
Despite Graham’s cautious view, he provides various near-term factors that could serve as catalysts for the stock. He explains, “We… see some potential points of optimism for Twitter in H2, including the U.S. Presidential election, Rio Olympics, and Twitter’s Thursday night NFL deal.” Ultimately, the analyst believes that if management plays their cards right, the company will be back on track for growth. He states, “Our stance on the stock remains one of cautious optimism that management can navigate the current operating trough and ultimately capitalize on Twitter’s unique content, and that this same unique content could make it a takeout target.”
The analyst reiterates a Buy rating on the stock with a $20 price target.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Michael Graham has a yearly average return of 12.2% and a 57% success rate. Graham has a -28.2% average return when recommending TWTR, and is ranked #103 out of 4038 analysts.
Out of the 43 analysts polled by TipRanks, 12 rate Twitter stock a Buy, 25 rate the stock a Hold and 6 recommend a Sell. With a return potential of 12%, the stock’s consensus target price stands at $19.88.
Analyst Michael Pachter of Wedbush provided his insights on Netflix prior to its Q2:16 results early next week. The analyst predicts revenues of $2.27 billion and EPS of $0.093, slightly above consensus estimates of $2.11 billion in revenue and earnings of $0.02 per share. Pachter also predicts streaming sub net adds of 500,000 domestic and 2.25 million international, slightly above the company’s predictions. However, the analyst expects modest q3 subscriber growth compared to q2 due to the slow pace of price increases and a successful launch of orange is the new black so late in the quarter. Specifically, the analyst predicts q3 guidance of 500,000 new domestic subscribers compared to his prior 750,000 estimate.
While the analyst predicts a slightly better than expected q2, he expresses grave concern regarding recent competition from Amazon. The analyst explains that “Amazon declared war on Netflix” by recently launching its own video streaming service to directly compete with the company. Although the analyst is confident in Netflix’s brand power, he believes Amazon represents a concrete threat. He explains, “While we don’t think that Amazon will attract many current Netflix customers, we think it is foolish to assume that new SVOD customers will favor Netflix over Amazon every time.” As a result, the analyst notes that Netflix shares are currently overvalued as they do not yet factor in Amazon’s competitive threat, which should only increase with time.
Regarding expenses, Pachter predicts Netflix to significantly up its content spend by $1 billion in 2017 as it goes head to head with Amazon. The analyst notes that “This creates a double-whammy for Netflix—higher content spend and slowing subscriber growth.” As a result, Pachter predicts a much higher cash burn of $1.38 billion in 2016 compared to $920 million last year, signaling trouble for investors. He notes, “We do not expect the company to generate positive FCF this decade.”
The analyst reiterates an underperform rating with a $45 price target.
According to TipRanks.com, analyst Michael Pachter has a yearly average return of -2.1% and a 48.5% success rate. Pachter has a -43.8% average return when recommending NFLX, and is ranked #3499 out of 4038 analysts.