×
You will be redirected back to your article in seconds

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

  • Facebook's Oculus Quest Shows How AR

    What the Oculus Quest Can Teach Us About the Future of Mixed Reality

    Facebook’s new Oculus Quest headset is a great gaming device that simplifies virtual reality (VR), doing away with the need for an expensive PC and external tracking hardware. But with its integrated tracking, the Quest can also teach us a thing or two about the future of virtual and augmented reality. Those two areas of [...]

  • snapchat-logo

    Snapchat Takes Down Porn Lenses, May Start Cat-and-Mouse Game

    Snapchat quickly removed a handful of x-rated augmented reality lenses Tuesday, dealing a blow to efforts by adult entertainment company Naughty America to promote its subscriptions to the service’s users. However, the porn studio may not be quite done with Snapchat just yet, as it is still distributing the source files that allow Snapchat users [...]

  • YouTube logo

    Why YouTube Is Changing the Way It Reports Subscriber Counts

    Within the next three months, YouTube will change the way it publicly displays channel subscriber counts: It will provide only rounded figures instead of actual follower numbers. For example, under the change, T-Series — the Indian music-video channel that recently surpassed PewDiePie to become the most-subscribed channel on the platform — would be listed in [...]

  • Phillip Eubanks and Marc Hemeon Join

    Phillip Eubanks and Marc Hemeon Join Troy Carter’s Q&A

    Q&A, the music and tech company founded by former Lady Gaga manager and Spotify exec Troy Carter, today announced the appointments of Phillip Eubanks as Chief Operating Officer (pictured above, right) and Marc Hemeon as Head of Design (left). The pair join Carter, J. Erving (Human Re Sources, Atom Factory), Suzy Ryoo (Atom Factory, OMD) [...]

  • Simran Sethi Quits Netflix India Role

    Simran Sethi Quits Netflix India Role

    Simran Sethi, the Los Angeles-based director of Netflix international originals, responsible for India content, has resigned and will quit after a transition period. Netflix did not comment. Sources familiar with the matter told Variety that Netflix prefers an executive based in India to oversee local original content that has now grown to 11 series and [...]

  • The Secret Life of Pets 2

    ‘The Secret Life of Pets 2’ Tops Studios’ TV Ad Spending

    In this week’s edition of the Variety Movie Commercial Tracker, powered by TV ad measurement and attribution company iSpot.tv, Universal Pictures claims the top spot in spending with “The Secret Life of Pets 2.” Ads placed for the animated film had an estimated media value of $11.52 million through Sunday for 869 national ad airings [...]

  • Cory-Haik-Vice

    Vice Media Hires Cory Haik, Former Mic Publisher, as Chief Digital Officer (EXCLUSIVE)

    Vice Media has recruited Cory Haik, former publisher of digital news start-up Mic, as chief digital officer to lead the youth-culture company’s global internet businesses. Haik will be based at Vice’s Brooklyn headquarters and report to CEO Nancy Dubuc. She most recently worked at Mic, which last fall laid off virtually its entire staff before [...]

More From Our Brands

Access exclusive content