Netflix Bulls Help Stock Mitigate Losses to Close Down 5% After Q2 Sub Miss

Some investors saw the steep drop in Netflix shares — after the company missed subscriber-growth targets by more than 1 million for the second quarter of 2018 — as a buying opportunity.

The streamer’s shares regained some of their mojo Tuesday, closing down 5.2% for the day to $379.48 per share. That came after Netflix shares plunged more than 14% in after-hours trading Monday.

Netflix’s stock drop had pushed its market capitalization below that of Disney, but by the end of the day Netflix shares had recovered enough to put its market cap ($165 billion) once again just above the Mouse House’s ($164 billion).

Many Wall Street analysts remained upbeat on the stock. “We recommend investors take advantage of the pullback in shares, as expectations will now be reset lower and the momentum behind the business and its profitability remains healthy and clear,” Morgan Stanley’s Benjamin Swinburne wrote in a note Tuesday.

Netflix’s shortfall of 1 million subs in Q2 represented less than 1% of the 130 million global customer base at the end of the period, Swinburne noted. And, he added, Netflix’s streaming-customer growth remains “large and accelerating.” Over the last 12 months, Netflix’s global net adds were 26 million (nearly 3 million higher than the company’s guidance), and up compared to 21 million in the 12 months prior.

Meanwhile, BMO Capital Markets’ Dan Salmon upgraded Netflix to “outperform” (from “market perform”) after the Q2 earnings report. He cited expected growth in India and Japan into 2019 and Netflix’s ability to “to continue to transition to more originals from licensed studio content well,” citing the end of Disney’s movie-output deal with Netflix in 2019, as well small but steady growth of consumer-product licensing revenue.

As Netflix’s library of originals grows, Salmon sees an opportunity for the company to develop a high-margin product licensing business, especially for films and children’s shows. He also cited content from comic-book publisher Millarworld as a potential catalyst. “We believe NFLX has laid the groundwork for being a more diversified company from a revenue perspective,” he wrote.

UBS analyst Eric Sheridan lowered his price target on Netflix, from $425 to to $360 per share, maintaining a “neutral” rating.

“Longer term, we still see NFLX as a global leader in streaming media and that NFLX mgmt’s focus on expanding the competitive moat via a mix of content spend, brand/content awareness (through mkting spend) and subscriber growth all continue to point to sustained topline growth & forward margin expansion,” Sheridan wrote in a research note.

For the second quarter of 2018, the company reported 670,000 streaming net adds domestically and 4.47 million internationally, or 5.15 million total. Wall Street analysts had expected 1.23 million net adds in the U.S. and 5.11 million overseas for the period (6.34 million total).

Netflix execs said they weren’t sure why subscriber growth in Q2 was lighter than they forecast. “We’ve seen this movie of Q2 [subscriber net adds] shortfall before, about two years ago in 2016 — and we never did find the explanation to that, other than there’s some lumpiness in the business,” CEO Reed Hastings said on the company’s post-earnings interview.

The lower-than-expected subscriber growth may have been the result of “no new breakout original hits this quarter,” or an indication that Netflix’s business is subject to a summer seasonality, Swinburne speculated. It might also have been the case that “after multiple quarters of outperformance, some upward bias crept into the internal budget Netflix uses as guidance to investors,” he added.

Netflix’s Q2 revenue and profit growth were strong and roughly in line with analyst expectations. Netflix posted quarterly revenue of $3.91 billion, up 40% year over year, and earnings per share of 85 cents (versus 15 cents in the year-ago quarter). Wall Street consensus Q2 2018 estimates were for $3.94 billion in revenue and EPS of 79 cents.

More Digital

  • Nigeria’s Kunle Afolayan: African Audiences Shouldn’t

    Nigeria’s Kunle Afolayan: African Audiences Shouldn’t Be ‘Second-Class’

    DURBAN–A young boy from a middle-class home gets an unconventional schooling in the ways of the world when he’s forced to apprentice at a mechanic’s workshop in a rough-and-tumble section of Lagos. “Mokalik” is the latest feature from Kunle Afolayan, a leading figure in the wave of filmmakers revitalizing the Nigerian film industry. The film [...]


    SAG-AFTRA Ends Long Strike Against Ad Agency Bartle Bogle Hegarty

    SAG-AFTRA has ended its 10-month strike against Bartle Bogle Hegarty after the advertising agency agreed to sign the union’s new commercials contract. The union instructed its 160,000 members in September not to accept any work for BBH, which had been signed to SAG-AFTRA’s commercials contracts since 1999. The strike came two weeks after BBH publicly [...]

  • FaceApp is displayed on an iPhone,

    SAG-AFTRA Warns Members About FaceApp Terms of Use

    SAG-AFTRA is warning its 160,000 members about the “overreaching and invasive” terms of use for the FaceApp mobile application. FaceApp, developed by Russian company Wireless Lab, uses neural network technology to automatically generate transformations of faces in photographs. The app can be used to make users appear older, younger, or change gender. The terms include [...]

  • J. Cole

    Apple Music Launches 'Rap Life' Playlist

    Apple Music announced the launch of “Rap Life,” a new global playlist focusing on contemporary rap artists and culture. It replaces the former “The A-List: Hip-Hop” playlist. Said Ebro Darden, Apple Music’s Global Editorial Head of Hip-Hop and R&B: “We flipped it to dig deeper into into the lifestyle [and to] keep pushing the culture [...]

  • Billie Eilish

    ARRI, Mobile TV Group Back New Venture Revitalizing Streamed Concerts

    A new venture looking to bring a fresh approach to live-streaming concerts has gotten the backing of hardware heavyweights ARRI and Mobile TV Group. Wide+Close is launching with the mandate of shooting music performances with film cameras and cinematographers in order to give the content a more cinematic feel. “We want to take concert filming [...]

  • Fortnite Battle Royale

    How 'Fortnite' Fans Can Earn Loot by Watching YouTube Videos

    Epic Games and YouTube have teamed up with a special offer for “Fortnite” players — giving players of the popular battle-royale game rewards when they watch “Fortnite”-premiered content on the video platform. The catch: You have to watch at least 20 minutes of “Fortnite” special content or live esports broadcasts to receive the loot. Under [...]

More From Our Brands

Access exclusive content