Kiana Madeira and Gillian Jacobs in Netflix’s ‘Fear Street Part 3: 1966.’
shares are trading lower amid mixed Wall Street reaction to the company’s June-quarter financial results, with most of the key debates around the streaming-video giant’s shares still unresolved.
Netflix shares (ticker: NFLX) were down 4.1%, at $509.42, in recent trading. The
was up 0.7%.
To recap: For the June quarter, Netflix posted revenue of $7.3 billion, in line with guidance and up 19% from the year-ago quarter. Profit was $2.97 a share, below the company’s forecast of $3.16 a share, mostly due to a noncash charge related to euro-denominated debt.
Netflix added 1.51 million net new subscribers in the quarter, ahead of the company’s forecast of 1 million net adds, with most of the new subs coming in Asia and subscribers down a combined 400,000 in the U.S. and Canada.
For the September quarter, Netflix projects 3.5 million net subscriber adds, shy of the Street consensus forecast of 5.6 million. Netflix sees revenue for the quarter of $7.48 billion, in line with Street estimates, with profit of $2.55 a share, ahead of the Street at $2.17.
Netflix also provided details on its plans for adding streaming videogames to the platform: The company will add mobile games to the platform gradually, at no additional cost, and with no in-game advertising or in-game purchases.
The bulls on the stock see the June quarter as the trough for subscriber growth. As Netflix had previously warned, the first-half content slate was muted by Covid-related production shutdowns, with a surge in new and returning content expected in the second half—and bulls see better growth in coming quarters.
asserted on a call with analysts that the company isn’t seeing any impact on subscriber growth from a proliferation of other streaming platforms, and that he expects streaming video overall to continue to take market share from linear TV.
The optimists see the gaming strategy making the services stickier. But the bears point to the disappointing projected subscriber growth and find little reason to get jazzed about the move into gaming, given it will not directly generate any new revenue. As Hastings said on the company’s earnings call, Netflix remains a one-product company, and that product is all about signing up and keeping subscribers.
A bull on the stock, Evercore ISI analyst Mark Mahaney, throws down the gauntlet in his note on the quarter, which he describes as a “clearing event” for Netflix shares. Mahaney writes that comparisons get easier from here, production challenges should be over and subscriber additions should accelerate. He thinks the stock should “surge” from here, and names Netflix as one of his top picks among the megacap internet companies, along with
Mahaney thinks Netflix can grow to close to 500 million global subscribers (from a little over 200 million now) by 2030—and he sees profits of close to $30 a share by 2025. He thinks the stock can trade at 30 to 35 times that estimate and can double in price over the next three years. He repeats his Outperform rating on the stock, while trimming his target to $635 from $655.
J.P. Morgan analyst
writes that he comes away from the quarter “incrementally positive” on Netflix shares, repeating his Overweight rating and lifting his price target to $625 from $600. He writes that he is “increasingly more confident in the second half content slate,” and adds that the company still has a “significant global secular growth opportunity ahead.”
stays bullish, too. She reiterated a Buy rating and $650 target on the stock. Ripps is bullish on the move into mobile gaming, which she thinks should help boost user acquisition among a younger demographic. “We see Netflix as well-positioned to increase its share of entertainment screen time given its robust investment in quality original content, improving cash flow profile and global scale,” she writes.
But the bears on the stock are unpersuaded.
Wedbush analyst Michael Pachter, a Netflix permabear, repeats his Underperform rating and $342 target, describing the company’s push into gaming as an “ill-advised foray” that suggests that the company’s video content pipeline is flowing more slowly. “Current valuation reflects faster growth than we expect the company to deliver,” he writes.
Needham’s Laura Martin, another longtime skeptic on Netflix shares, likewise repeats her Underperform rating. She notes that the stock has been seeing multiple compression—on an enterprise-value-to-forward-revenue basis, she says, the multiple has dropped over the past five quarters to 8.4 times from 9.1 times, with the multiple on Ebitda (earnings before interest, taxes, depreciation, and amortization) dipping to 34.8 times from 44 times.
Martin thinks there’s a risk that the valuation on Netflix shares could fall by half or more, which she says would bring the stock in line with other streaming players. She notes that a basket of streaming stocks that includes
(DIS), and fuboTV (FUBO) trades for 4.4 times estimated 2022 revenue and 14 times estimated Ebitda, well below the current Netflix valuation.
Write to Eric J. Savitz at email@example.com