Analysts stick by plunging Netflix shares, see comeback this quarter driven by ‘Stranger Things’

“Q2 Subs came in materially light, due to a weak new content slate & some price hike pushback. The Subs miss wasn’t unprecedented, though the International miss magnitude was greater than normal. The Q3 &’19 Subs outlooks were strong, however. We believe the Long Thesis is intact, though we are incrementally less bullish. Price target reduced from $480 to $450. Maintain Outperform.”

“2Q net adds miss was meaningful, but 2Q results are often volatile & NFLX had a number of moving pieces this qtr…Net/net, we don’t take the 2Q miss lightly, but history tells us it’s a difficult quarter from which to extrapolate NFLX’s trajectory….We recognize Disney+ risk into 4Q, but we do not expect it to have a major impact on NFLX subs & we believe NFLX’s outlook is achievable…Early 3Q trends are strong, led by Stranger Things S3, & we believe churn rates have receded closer to pre-price increase levels.”

“We believe the hiccup in Netflix’s sub growth is ephemeral, rather than structural. Netflix says churn is already back to normal levels and it’s past the bulk of its global price hikes, while net adds have gained early into 3Q on Stranger Things’ popularity. We don’t yet see any enhanced competition that may have driven the sub miss. With a strong content slate lined up for 2H, we view paid net add guidance of 7mn for 3Q as credible, along with the longer-term sub growth outlook.”

“2Q Disappoints on Price Increases and Limited Releases; However, Early 3Q Shows Rebound…FY margin outlook is unchanged, and FCF losses are expected to moderate in 2020. Overall, we still see NFLX on track to garner material growth in global broadband homes.”

“While the sub dynamic will likely dominate investor debates over the short/medium term (esp. w/ competition ahead offset by strong 2H content slate), we overall saw further LT validation points in terms of rev growth, incremental margins & mgmt reiteration of LT strategic focuses (building content library, driving subscriber scale globally, expanding margins & improving FCF dynamics, all w/ none of the broader industry focus on regulation). As a result, we still see NFLX as a LT secular growth winner in the sector.”

“Netflix missed 2Q net adds by over 2mm. Did the world change in the last three months? We do not believe it did. Moreover, layering in the 2H19 guide leaves our full year estimates largely unchanged. If it delivers, ’19 will be another year of record net adds and nearly double digit ARPU growth.”

“As Netflix’s content investments, distribution partnerships and marketing spend drive subscriber growth significantly above consensus expectations and the company approaches an inflection point in cash profitability, we continue to believe shares of NFLX will significantly outperform. We remain Buy rated (on CL), though we lower our 12-month price target to $420 from $460 to reflect our revised estimates.”

“However, the company is likely to see tailwinds from multiple factors which will likely help the back half such as (a) lower tier price point in India, the impact of which has not been incorporated into guidance, (b) significant show launches in Q3 and Q4, (c) pushing of marketing spend to 2H’19, (d) most of the price increase having flowed through the base and early 3Q churn improvement, and (e) the pull forward effect of Q2 price increase on Q1 sub numbers. Management commentary about revenue growth this year also implies better than expected acceleration in Q4. So, while the post close weakness may understandably persist over the coming weeks, we believe it is too premature to extrapolate from 2Q results.”

“If Content Is King, Then Buy Any 2Q Pullback…Some will say this miss suggests maturation or lack of pricing power; we see neither. We would note Netflix misses have been followed by strong qtrs, and, along those lines, we expect Netflix’s very strong 2H slate will lead to a rebound in sub growth. Also, price increases of over 10% leading to a 1% shortfall in subs does not suggest a lack of pricing power; in fact, just the opposite. While this volatility is not for the faint of heart, we believe the 2Q19 miss will create a buying opportunity.”

“As the Netflix sub base continues to grow, the lineup of new content is having a more pronounced effect on net subscriber additions. Said differently, at this scale, a lighter slate, as seen in Q2, will result in both lower subscriber retention and lackluster new sub additions. Conversely, in 2H’19, there should be a positive impact from an improving slate and we are, therefore, optimistic about the company’s opportunity to grow subscriber additions y/y in a FY basis.”

“On one hand, subscriber net adds missed guidance and our estimates noticeably, including a somewhat unexpected sequential decline in domestic subs. On the other, revenue growth accelerated for the second straight quarter, and Q3 subscriber growth should accelerate on international strength. While the subscriber will likely weigh on the stock in the short term and pricing power may be in question for now, we still see a strong content strategy and room to add large numbers of international subs as key strengths going forward.”

“In fullness, does this EPS change our thesis or conviction? No. Does it make us more nervous? Of course. Especially given the timing of Disney+ launch. We don’t think the Disney+ launch will have anything to do with Netflix’s success or failure. But if Netflix misses subs in the quarters after Disney+ launches, the market will make the correlation anyway, and we expect the downside effect on NFLX stock will be several times more than usual.”

“The reality is 2Q has been a tough quarter for three of the past four years, and it’s likely a combination of factors driving softness. Given high expectations, we expect some multiple compression on Thursday as investors digest growth vs. end-market saturation. It will likely take strong results over the next two quarters to refute these controversies and drive a more meaningful move higher.”

“While it appears that 2Q is somewhat of an anomaly, we think concerns around impending competitive launches will keep a bit of a lid on shares at least until we see the effect of competing services early next year. Our estimates change slightly, and our target price goes to $310.”

“We believe explanations for the current quarter miss appear reasonable, though with a likely louder market narrative around competition leading up to the November 12th Disney+ launch in the U.S., Netflix shares may be range bound until the next meaningful catalyst, 3Q earnings. At that time, Netflix will have to prove, as it has done many times, that its value proposition remains one of the best on the net.”

“Let’s Not Make a Mountain Out of a Molehill; Raising Target to $515….The NFLX positive investment thesis remains very much intact in our view and we would use share price weakness as a purchase opportunity….Churn, seasonality, and a less effective content slate drove the 2q subscriber miss but these are all reversing in 2h in a big way, making management’s expectation for full year growth in paid net new subs reasonable.”