Netflix (NFLX) beat both Wall Street’s top and bottom-line estimates in its latest quarterly statement, but it was not enough to fend off the bearish sentiment. Shares dropped in the subsequent session as investors digested disappointing 1Q subscriber results and 2Q subscriber guidance.
In 1Q21, the streaming giant added 3.98 million new subscribers, far below the 6.2 million the Street had in mind. What’s more, for the current quarter, Netflix guided for just 1 million new additions, roughly 4 million less than the optimistic consensus estimate.
On the other hand, revenue hit $7.16 billion, representing a 24.1% year-over-year increase and beating the forecasts by $20 million. Additionally, Q1 GAAP EPS came in at $3.75, ahead of the Street’s call by $0.78.
Addressing the results, Pivotal analyst Jeffrey Wlodarczak says Netflix “felt the hangover from their blowout 2020 and a relative lack of compelling content related to Covid production shutdowns.”
Apart form the revenue and earnings beats, Wlodarczak notes other positives.
Despite substantial price hikes in late 4Q/1Q, subscriber churn fell year-over-year, which “highlights pricing power of the product despite additional competition.” Further down the line, with productions back in full swing there will be some see major content releases in 2H21, which should “significantly juice subscriber results.”
And while Wlodarczak tells investors to prepare for a bumpy ride over the coming months, the analyst stresses it is not much more than a glitch in the long run.
“The subscriber miss and relatively weak subscriber guidance are likely to drive short term weakness in NFLX shares, there is a risk the shares could be dead money until NFLX reports 2Q results (where they will likely unveil a significant acceleration in 3Q subscriber guidance),” the 5-star analyst said. “But our view is that this is mainly a blip (mostly related to key content being pushed into 2H) and we continue to see a healthy runway for subscriber growth as streaming continues to take share from PayTV globally.”
That said, the results have caused Wlodarczak to lower subscriber estimates for the full year from +24 million to +20 million, and there’s also a trim to the price target, which is reduced from $750 to $720. However, investors are still looking at upside of 31% from current levels. Wlodarczak’s rating stays a Buy. (To watch Wlodarczak’s track record, click here)
It’s mostly Buys from the rest of Wall Street’s analyst corps. 13 positive reviews in addition to 3 Holds and 4 Sells, culminate in a Moderate Buy consensus rating. At $598.52, the average price target suggests upside of ~18% over the coming months. (See NFLX stock analysis on TipRanks)
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