Netflix shares fell around 7% on Friday morning as the streaming company reported better-than-expected first-quarter results but presented a revenue outlook that did not meet Wall Street's expectations.
The stock fell by 6.9%, or $42.67, to $567.89 in morning trading. It began the day 30% higher than the start of the year, but was down about 4% from earlier this month's peak.
Late Thursday, Netflix reported a 15% increase in revenue to $9.3 billion for the quarter, which led to a 77% surge in profit to $2.3 billion. The company attributed a 16% rise in subscribers to 269.6 million and recent subscription price hikes for surpassing analyst expectations for the quarter.
However, its projected revenue growth of 13% to 15% for the year was lower than what analysts had hoped for.
J.P.Morgan analyst Doug Anmuth, along with other analysts, considered the forecast to be “weaker than expected,” and mentioned in a note to clients that it “suggests deceleration.”
Nevertheless, Anmuth retained an “Overweight,” or “Buy” rating on the shares, with a $650 price target, indicating his anticipation of the stock gaining about 7% over the next year. Overall, he described the results as “very strong overall” and stated that Netflix’s actions to prevent customers from sharing their passwords “has significantly contributed to acquiring new subscribers.” He also anticipates price increases in international markets later this year.
While Anmuth believes that Netflix still has the potential to convert password borrowers into paying subscribers, estimating as many as 40 million potential targets, MoffettNathanson analyst Michael Nathanson is less convinced about the sustainability of the company’s subscriber growth.
“Within that, there is both the question of how much the company’s recent
reacceleration has been driven by a crackdown on password sharing, as well as how many potential paying password sharers remain,” he stated in a note to clients. “Although different conclusions can be drawn, we believe the easiest targets have already been reached.”
“Netflix has mentioned expanding its efforts to previously untapped mobile users, but it is uncertain how significant this opportunity is and whether it can produce similar outcomes,” he stated.
Netflix announced on Thursday its intention to cease disclosing subscriber numbers and other metrics next year, which Nathanson suggested “could indicate that subscriber growth has peaked, particularly in higher-income markets, with a potential slowdown on the horizon.” He maintained a “Neutral” rating and a $505 target price for the stock.
Most analysts were not as pessimistic, with price target increases from Wells Fargo, Pivotal Research, Bernstein, Bank of America, and Evercore, as well as a shift from “Hold” to “Buy” at Needham.
Seaport Research analyst David Joyce remarked that growth in Netflix’s ad-supported tier “seems to be taking double the time to reach our advertising revenue estimates than previously anticipated,” leading him to maintain a “Neutral” rating on the shares, and adding, “we believe the company needs to prove
that it is taking advantage of the advertising opportunity to support its current stock price.
