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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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Netflix shares fell by as much as 7% in early trading on Wednesday after reporting a lower-than-expected number of paid memberships for 1Q 2021. The company reported 208 million paid memberships versus 210 million originally expected. The streaming giant attributed the membership growth slowdown to a big COVD-19 pull forward last year. A lighter content slate also had a hand in the slowdown. However, Netflix (NFLX) was still able to post a 24% year-over-year increase in revenue that totaled $7.16 billion, in line with the company’s guidance. Operating income more than doubled year-over-year to $1.96 billion. Average revenue per membership benefited from price hikes and rose 6%. Paid net additions in the quarter totaled 4 million, well below estimated 6 million. Earnings per share in the quarter more than doubled to $3.75 against $1.57 reported in the year-ago period. Netflix ended the first quarter with a much bigger membership and revenue base than it had last year in the same quarter. Net cash from operating operations nearly tripled to $777 million compared to $260 million a year ago. The company is on track for full-year free cash flow to break-even. Netflix is projecting a solid second half of the year. The company is betting on the return of new seasons for some of its biggest shows and films to fuel growth. “We are optimistic about the future and believe we are still in the early days of the adoption of internet entertainment, which should provide us with many years of growth ahead,” Netflix stated in a press release. Netflix shares are up 1.7% year to date after a 67% pop in 2020. (See Netflix stock analysis on TipRanks). According to Stifel Nicolaus’s analyst Scott W.Devitt, Netflix is well positioned to add over 100 million subscribers over the next five years and reach over 400 million paid subscribers by 2030. “Steady scaling of content investments against a growing subscriber base should fuel continued operating margin progress despite continued content investments. International penetration continues to increase with greater adoption in key markets, including Europe, Latin America, and APAC, with significant runway remaining,” Devitt wrote in a research note Devitt has since confirmed his upgrade of Netflix to a Buy, with a $560 price target, implying 10% upside potential to current levels. Consensus among analysts is a Moderate Buy based on 21 Buys, 4 Holds and 4 Sells. The average analyst price target of $598.52 implies approximately 17% upside potential to current levels. NFLX scores 8 out of 10 on TipRanks’ Smart Score rating system, which indicates that the stock is likely to outperform the overall market. Related News Abbott Starts Shipping Over-The-Counter COVID-19 Self-Test AT&T To Provide UConn With 5G Network GM And LG To Invest $2.3B In Tennessee Manufacturing Plant