Not Everyone Is Excited About Netflix as Its Bulls Are

October 17, 2018 by Jon C. Ogg

Netflix Inc. (NASDAQ: NFLX) had by far a good earnings report. Its stock was also up 4% at $346.40 ahead of earnings report during Tuesday’s major stock market rally. And Wednesday’s post-earnings gain was indicated up 10% at $382.00 in the early bird trading hours ahead of Wednesday’s opening bell. With strong earnings and strong subscriber growth, Netflix shares have pulled back from the morning’s highs and the stock is still down about 15% of its all-time high that put in this summer ahead of the prior earnings disappointment.

24/7 Wall St. has already covered the earnings and subscriber numbers in detail and we wanted to take a morning-after approach on the stock. After all, Netflix shares were indicated to be even higher than where they were after about an hour of trading.

Many analysts have chimed in on Netflix on Wednesday morning. We have tracked close to a dozen analyst call so far, and some of the analyst changes stood out from the pack of raising targets. Some analysts were even quite negative on Netflix as the company’s pre-earnings valuations were 127 times 2018 earnings per share and 80 times those for 2019.

KeyBanc Capital Markets downgraded Netflix to Sector Weight from Overweight in a valuation call. Wedbush Securities maintained its lowest street standing with an Underperform rating while raising its price target from $125 up to a slightly less negative $150 price target. A firm called MoffettNathanson reportedly has lowered its Netflix price target to $210 from $223. And a firm called Imperial Capital lowered its price target to $464 from $494.

Many analysts on Wall Street already had Buy and Outperform equivalent ratings for some time. And several price targets were raised on Wednesday despite many changes having been made in the past 10 days or so. These were shown as follows:

  • BMO Capital Markets reiterated its Outperform rating and raised its target price to $440 from $400.
  • Canaccord Genuity reiterated it as Buy and raised the price target to $470 from $450.
  • Citigroup reiterated its Buy rating and raised its price objective to $400 from $375.
  • Goldman Sachs has a Buy rating and raised its target to price $480 from $430.
  • JPMorgan has an Overweight rating and raised its target to $450 from $415.
  • Morgan Stanley has an Overweight rating and raised its target to $475 from $450.

Other price target changes also seen:

  • Merrill Lynch, to $440 from $410
  • Macquarie, to $410 from $388
  • Raymond James, to $435 from $400
  • RBC Capital Markets, to $450 from $440
  • Stifel, to $474 from $395

As Wedbush has the most negative stance on Netflix of all listed analysts, we wanted to look at its rationale for remaining so negative, despite raising its price target over time. The firm’s Michael Pachter said:

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.

Netflix was up 10% in the early indications on Wednesday, but after more than an hour of trading, its shares were up only about 4.3% to $361.45. The shares have a 52-week trading range of $178.38 to $423.21.

I'm interested in the Newsletter