Subscription video-on-demand leader Netflix (NFLX) has hit a soft patch in subscriber growth, and the trend could continue for another couple of quarters. Netflix stock sank Wednesday after the company’s disappointing first-quarter report.
At least 13 Wall Street analysts lowered their price targets on Netflix stock following the earnings report.
In afternoon trading on the stock market today, Netflix stock fell 7.3%, near 509.50. In a negative sign, Netflix stock dropped below its 50-day and 200-day moving average lines.
Late Tuesday, Netflix badly missed expectations for new subscribers in the March quarter. It added 3.98 million streaming subscribers in the first quarter, vs. its own target of 6 million and Wall Street’s consensus estimate of 6.3 million. Netflix ended the period with 207.64 million streaming subscribers worldwide.
Netflix Blames Covid Pandemic
Worse yet, it forecast adding just 1 million subscribers in the June quarter. Wall Street had predicted 4.4 million net new adds in the second quarter.
Netflix blamed the weaker-than-expected subscriber adds on a “pull forward” of customers last year because of the Covid-19 pandemic. The streaming video service got a huge boost in business starting in early 2020 as consumers stayed home during the health crisis. In the first quarter last year, Netflix added a whopping 15.77 million new subscribers. It then added 10.09 million subscribers in the second quarter of 2020.
Netflix also cited a light content slate in the first quarter, due in part to Covid-related production delays.
“In terms of Q1 performance, it really boils down to Covid, frankly,” Chief Financial Officer Spencer Neumann said on the company’s earnings conference call. The pandemic has created “some short-term kind of choppiness in some of the business trends.”
The pull-in of subscribers in the first half of 2020 has made it “super hard” to forecast quarterly subscriber numbers this year, Neumann said.
Netflix Stock Upgraded To Buy At Stifel
While subscriber additions have slowed, churn is down year over year and user engagement is up, Morgan Stanley analyst Benjamin Swinburne noted in a report to clients. He reiterated his overweight, or buy, rating on Netflix stock but cut his price target to 650 from 700.
Stifel analyst Scott Devitt said the pullback in Netflix shares offers investors an entry point in a “blue-chip consumer technology company” with a “compelling long-term growth story.”
He upgraded Netflix stock to buy from hold and raised his 12-month price target to 560 from 550.
Netflix is likely to face a three- to nine-month period of tough comparisons vs. last year’s Covid-fueled gains, Devitt said in his note to clients.
Netflix expects subscriber additions to pick up in the second half of the year thanks to a strong content slate. That content includes new seasons of hit series “The Witcher,” “Money Heist,” “Sex Education” and “You.” It also will premiere original movies such as “Red Notice,” starring Gal Gadot, Dwayne Johnson and Ryan Reynolds, and “Don’t Look Up,” starring Leonardo DiCaprio and Jennifer Lawrence.
Its most popular content in the first quarter included TV series “Bridgerton,” “Ginny & Georgia” and “Fate: The Winx Saga.” Hit Netflix movies included “I Care a Lot,” “Yes Day” and “Outside the Wire.”
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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