Can you feel the ground moving beneath your feet? Shares of Netflix (NFLX) skyrocket nearly 10% in pre-market trading Wednesday after the streaming giant delivered third-quarter financial results that crushed Wall Street’s expectations in an upside surprise. The shake, rattle and roll generated by last night’s earnings report impressed, and in some cases silenced, some big bears.
However, notwithstanding the impressive results, Wedbush analyst Michael Pachter sees clouds on the horizon and, as such, reiterates an Underperform rating on NFLX stock, while lifting the price target to $150 (from $125), which implies a potential downside of 57% from where the stock is currently trading. (To watch Pachter’s track record, click here)
Pachter noted, “We expect content acquisition spending to trigger substantial cash burn for many years; notwithstanding three Netflix price increases in the last five years, cash burn continues to grow. International profits may remain elusive due to competition for content and subs, and last year’s price increases could cause a deceleration in subscriber growth. Consistently negative FCF makes DCF valuation impossible.”
“Disney and Fox are likely to migrate content that is currently licensed to Netflix to a Disney-sponsored standalone service next year. The silver lining is that Netflix will have less content available to it, resulting in more stable cash burn; unfortunately, this subjects the company to the potential for slowing subscriber growth should its original content offering fail to achieve the quality and quantity of the lost content,” the analyst added.
Net net, most of the Street is far more confident than Pachter’s bearish stance, with TipRanks analytics showcasing NFLX as a Buy. Based on 36 analysts polled in the last 3 months, 24 rate a Buy on Netflix stock while 10 issue a Hold, and only 2 recommend a Sell. The 12-month average price target stands at $389.21, marking a nearly 12% upside from where the stock is currently trading. (See NFLX’s price targets and analyst ratings on TipRanks)