Netflix, Inc. (NASDAQ:NFLX) stock is plunging following the release of disappointing second-quarter earnings that has left investors disenchanted with the online streaming giant. In reaction, RBC Capital analyst Mark Mahaney reduced his price target for NLFX to $130 (from $140), while reiterating an Outperform rating, although with far “less conviction”.
To Netflix’s credit, the company did gain $2.11 billion for revenue- aligned with RBC Capital estimates as well as for the Street, with earnings per share at $0.09 capping both RBC Capital’s goals as well as the Street’s at $0.02/0.03, thanks to lower than expected Marketing expense, Streaming COGs, and tax rate.
However, Netflix cites a churn factor for subscription growth shortcomings, asking for leeway as old members drop off after price hikes; an “un-grandfathering” issue. Netflix also offers the Olympics as another reason for weaker subscriptions.
Meanwhile, Mahaney criticizes Netflix for subscriptions “missed across the board, with price-increase pushback a key factor” in Netflix’s current stock dive. The analyst explains, “We think it’s hard to rule out market-maturation, competition, and less-than-perfect execution as factors as well. And there’s also the clear negative conclusion that while Netflix has some pricing power, it certainly hasn’t had as much as the company and the Bulls (including us) have believed.”
There still lies faith for Netflix to overcome these obstacles, benefiting from solid partnership with Comcast firmly in the company’s corner, while expanding its original content as well as to Disney. In the analyst’s eyes, Netflix has the influence of “universal appeal” and can channel that international power through marketing and content investments to rise above this current impediment. Mahaney asserts that “the risk-reward here long-term is still highly positive, in our view,” anticipating a rebound to over $10 in earnings per share by the year 2020.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, Mark Mahaney has earned a high ranking at #6 out of 4,064 analysts, upholding a 65% success rate with an average of 20.2% in annual returns per every recommendation he offers.
TipRanks analytics exhibit NFLX as a Moderate Buy with 61% of analysts issuing a Buy rating for the stock, 28% maintaining a Hold rating, and the remaining 11% upholding a Sell rating for shares of NFLX. The consensus target price for NFLX is $113.72, marking a nearly 32% upside from where shares last closed.