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A Shocked Wall Street Reacts To The Netflix Implosion

Tyler Durden's Photo
by Tyler Durden
Friday, Jan 21, 2022 - 02:39 PM

Netflix has crashed 21%, dropping below $400 after trading at $510 yesterday and at $700 two months ago, after the streaming-video company’s first-quarter subscriber outlook missed estimates, sparking panic over slowing growth. Several Wall Street firms cut the stock and slashed price targets, though long-term bear Benchmark upgraded the shares.

As Bloomberg notes, Netflix’s consensus rating - a proxy for its ratio of buy, hold, and sell ratings - stands at 4.08 out of five, compared with 4.27 over the weekend. Meanwhile, the average price target has dropped to $552 (with 30 buy recos)...

... down from about $653 with 36 buy recos, on Thursday, confirming once again that all sellside research is a momentum-chasing penguin game.

Below are some of the most notable highlights from Wall Street reports commenting on the company's guidance.

Credit Suisse

  • Downgrades to neutral from outperform, PT to $450 from $740
  • There is still a large opportunity in global streaming, and Netflix should retain its leadership position, but growth expectations are being reset lower
  • “As revenue growth heads towards single digits investors will start shifting from EV/Sales to more traditional valuations that are less favorable for Netflix at its current growth trajectory

Macquarie Research

  • Downgrades to neutral from underperform, PT to $395 from $615
  • The subscriber outlook is disappointing, and contributes to “a more uncertain outlook”
  • Competition is becoming a bigger problem, and the macroeconomic set-up has become more challenging

Morgan Stanley

  • Downgrades to equal-weight from overweight, PT to $450 from $700
  • Analyst Benjamin Swinburne now assumes base case of continued content spending growth, but more muted net adds outlook
  • A more rapid deceleration in growth creates more balanced risk/reward

KeyBanc Capital Markets

  • Downgrades to sector weight from overweight
  • Netflix now screens as a “low-double-digit grower,” analyst Justin Patterson writes, noting a decelerating subscription business
  • Investors will focus on the degree that paid net adds need to accelerate in 2H to surpass 20 million, Patterson says, adding that he sees few catalysts

Barclays

  • Downgrades to equal weight from overweight, PT to $425 from $675
  • Lack of growth visibility may not be just a 1Q22 issue, analysts led by Kannan Venkateshwar write in a note
  • Guidance was worse than worst-case expectations, though 4Q performance was roughly in line

Truist Securities

  • Downgrades to hold from buy, PT to $470 from $690
  • The “significant miss on guide calls growth trajectory into question,” and reduces visibility and confidence

Evercore ISI

  • Downgrades to in line from outperform, PT to $525 from $710
  • The subscriber outlook “was less than half of our/Street expectations, and easily the weakest” 1Q guidance in many years
  • “The negative inflection implied by the 1Q guidance is very significant”

And while most sellside analysts have soured bigly on the streaming giant, one company whose skepticism was proven right, is suggesting the bottom is here. Benchmark, which recommended selling Netflix shares since April 2020, upgraded Netdlix to hold from sell, and writes that a steep post-earnings selloff in the video-streaming company “seems overcooked.”

Analyst Matthew Harrigan notes that “retention and engagement remain strong” among subscribers, even as competition from other streaming services is weighing on member acquisition. And while the firm is removing its $470 price target - which was promptly hit on the downside this morning - it says $450 as fair value for the stock.

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