Netflix shed $17 billion in value today as Wall Street punished the leader in streaming media for announcing a day prior that it added only 2.7 million subscribers in the most recent quarter, far shy of the 5 million it had previously forecast.
In trading volume more than five times its daily average, the stock sunk 10 percent today as analysts digested the news, which included the fact that Netflix lost U.S. subscribers for the first time since launching its streaming product, meaning that the entirety of its gain came from international territories.
In a research note titled “Netflix: Doubters of the World Unite!,” Michael Nathanson of MoffettNathanson wrote, “While we have never doubted the quality of the Netflix product offering, we have recently had a hard time finding comfort in Netflix’s equity value.”
Nathanson’s target price is a lowly $220 on the stock, and today he slammed the discounted cash-flow models used by some analysts that look 10-15 years into the future as “bull shit.”
He said some bullish scenarios look “downright psychedelic,” considering that “U.S. subscriber adds turned negative on the back of $1 to $2 price hikes and an underwhelming content slate. This one quarter calls into question many of those 2025 endpoints.”
The weak subscriber additions are more concerning, considering they come prior to competition coming from Disney and WarnerMedia, both of which have streamers coming soon.
“None of that affected the second quarter, but investors wonder what the effect of large content players in the market, pulling some content from Netflix, will be,” said Macquarie Capital analyst Tim Nollen.
Multiple analysts, meanwhile, speculated that Netflix might go on a spending spree to acquire content business so that, eventually, it will look more like a traditional media company rather than the new-media pioneer that it has been since its inception two decades ago.
Michael Pachter of Wedbush, a longtime bear on Netflix, set his price target at $188 and wrote that he remains “skeptical that Netflix can turn free-cash flow positive in the next five years.
He noted that Netflix has already penetrated the majority of above-median income households in the U.S., and with Disney and WarnerMedia on the horizon, he expects Netflix “to have difficulty meaningfully growing its domestic subscriber base.”
Attribution:The Hollywood Reporter