Netflix, one of the heavyweights among the large momentum stocks that have gotten hammered during the market’s pullback, tumbled on Monday about 2%, to $141 a share, as investors gasped at the video-streaming leader’s weaker-than-expected subscriber numbers in the first quarter. And the stock has continued to sag, closing at $139 by Wednesday, from its 52-week high of $148.
The company’s first-quarter results showed a mixed picture that caught many investors by surprise. A number of unhappy large shareaholders bailed, amid the consternation over the disappointing quarterly performance.
So should investors turn their back on shares of Netflix, the world’s largest subscription service for accessing TV shows and movies? That could prove to be a huge mistake, argue the bulls and several analysts who track the stock. .
Opportunity knocks, they assert, as the fiery and fast-rising stock pulls back and takes a breather. They remain optimistic in spite of the burst of selling in the stock.
One of them is Tuna Amobi, equity analyst at CFRA Market Advisor, who raised his price target for Netflix by $5 a share to $160. Agt the sme time, he boosted his 2017 earnings estimate for Netflix by 18 cents a share, to $1.10, and raised his 2018 forecast by 6 cents, to $1.90. The increase in his estimates, says Amobi, is “partly warranted by the international upside and secular growth story.”
He notes that revenues jumped 35% on global net subscriber additions of 4.95 million (1.42 million in the U.S. and 3.53 million internationally) which, however, was below the company’s guidance. But Amobi points out that the target for the second quarter of 3.2 million addition “implies a year-to-year reaccelerating, if also somewhat cautious.
Michael Olson, equity analyst at investment firm Piper Jaffray, reminded clients in a recent note that Netflix is the “leader in a category that contains massive multi-year growth potential,” and that despite increasing competition and unforeseen hurdles, the video-streaming giant has climbed to such a high level that it could prevail in a market that’s large enough to to support multiple large players.
He noted that given management’s forecast that Netflix would hit 100 million subscribers sometime soon, and that the momentum could speed up through the end of the quarter, aided by the season premier of “House of Cards” and “Orange is the New Black,” management’s guidance for the second-quarter subscriber additions is “conservative.”
Olson, who says that “focusing on a long-term trajectory is the key” to investing in Netflix, rates the stock as “overweight,” with a price target of $166 a share.
Another Netflix bull, Doug Mitchelson of UBS, has a higher price target of $175 a share, who rates the stock as a buy. He says the company’s first-quarter results in fact provide a clearer idea of what Netflix’s prospects are in 2017. So as a result, he believes Netflix will see another year of “strong growth,” especially in the international market. The quarterly results also suggest that there appears to be real traction in Europe and Asia for Netflix. So investors, he advises, should feel confident in the company’s ability to provide sustained growth in the international markets.
Netflix’s guidance on a better-than-expected subscribers’ growth in the second quarter gave Kip Paulson, equity analyst at Cantor Fitzgerald, sufficient reason to stay positive on Netflix. The guidance partially offset the first-quarter miss on the subscriber number, he says, as quarterly net additions are usually volatile. But the company’s record fourth-quarter net additions, he notes, combined with management’s guidance for the second quarter this year shows a healthy trend in subscribers growth over a longer-term period. Paulson is maintaining his recommendation of “overweight” on Netflix, with a price target of $165 a share.