A new band of Wall Street analysts rushed to cut price targets and ratings on Netflix in response to deeply disappointing results, though shares of the pioneering streaming service have been under pressure for months.
Shares of Netflix NFLX, -36.75% tumbled around 29% in premarket trading on Wednesday, the morning after the company delivered a considerable slowdown in revenue growth and a surprise net loss of subscribers. While Netflix shed 200,000 subscribers in the first quarter, the company predicted it could lose 2 million more in the second quarter.
The analysts thought that Netflix could boost average revenue per user by cracking down on password sharing, though they warned that such a move could also cause “materially higher churn.” Additionally, the Pivotal team was unconvinced about the merits of a potential advertising tier on Netflix, writing that “it cheapens the brand and the product vs. the current great consumer experience and introduces ad volatility to results.
Wells Fargo analysts said that Netflix shares look less attractive now that the company is “firmly on the defensive,” and they argued that the streaming giant’s narrative “is dunzo for now.” J.P. Morgan joined the downgrade parade as well, with its analysts writing that Netflix just had “a sea change quarter…in which the company essentially conceded to every key point of the bear thesis.”
They lowered their rating to neutral from overweight while reducing their target price to $300 from $605.Barry Ritholtz, chief investment officer of Ritholtz Wealth Management, seemed to take aim at the late wave of downgraders. He tweeted that Wall Street analysts appeared “utterly useless” this time, given that Netflix shares had dropped about 50% from their October highs even without taking into account the declines expected in Wednesday’s regular session.
“Netflix is a great company and a great service. And NFLX has been an amazing stock over the last decade+. But not too dissimilar to what happened to PCLN/BKNG BKNG, +1.07% [Priceline/Booking] five years ago, growth has started to slip, largely due to maturity and competition, but also to new market challenges,” said Mahaney and his team.
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