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This Analyst Doesn’t See a Comeback in Netflix (NFLX) Stock Any Time Soon


Not many on Wall Street predicted Netflix’s (NFLX) disastrous second-quarter report, but Wedbush analyst Michael Pachter has been a Netflix bear for over two years and he may finally be vindicated with this Q2 release. Indeed, Pachter believes the 10% drop the stock suffered today is only the beginning, as he maintains an Underperform rating, while slightly raising his price target to $188 (from $183). (To watch Pachter’s track record, click here)

The most significant part of Netflix’s Q2 report was its subscriber numbers. The company missed its total subscriber guidance by over 2 million, and it lost 126,000 net US subscribers, which marks the first time in over a decade the company has had a quarter with negative domestic subscriber growth. In contrast to poor subscriber numbers, Netflix delivered second-quarter earnings of $0.60 per diluted share, compared favorably with guidance targets of $0.55 per share.

Pachter believes that “Netflix has already penetrated the majority of its above median income household addressable market at 60 million [US] subscribers.” Pricing has been a major issue for the company and Netflix pointed it out in their Q2 report. Perhaps more meaningful to the subscriber hit is increasing competition. Pachter thinks that “competition from Disney+, HBO Max and Comcast… [will cause Netflix] to have difficulty meaningfully growing its domestic subscriber base.”

With Netflix increasing its original content spending as some of its most popular content migrates away from the platform, Pachter expects cash burn to continue to increase. However, Pachter’s view does not seem unduly bearish when you consider his finer points. He is ready to rethink his bearish rating if he sees stabilization or a trajectory reversal in Netflix’s cash burn.

Pachter is the only Sell rating among the 27 analyst ratings on Netflix right now, but his thoughts are nuanced and he clearly lays out a path for the company to prove its sky-high valuation. All in all, TipRanks analysis of 30 analyst ratings show 26 Buys, 3 Holds, and only Pachter Selling on Netflix stock. The average price target of $412.22 represents a 27% upside from Netflix’s current stock price. (See NFLX’s price targets and analyst ratings on TipRanks)

 

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