Netflix Stock Tumbles After Earnings Report: Analysts Remain Bullish

Key Takeaways

• Netflix shares dropped over 8% following weaker-than-expected revenue guidance and the decision to stop reporting subscriber numbers.
• Despite the decline, analysts see Netflix as well-positioned with strong fundamentals and dominance in the streaming market.
• Bank of America raised its price target for Netflix, citing updated forecast figures and growth drivers.
• Macquarie welcomed the shift away from reporting subscriber growth, while Wedbush sees it as a move towards a slow-growth, high-profit business model.

Netflix shares took a hit, tumbling more than 8% on Friday after the streaming giant reported first-quarter earnings that beat analyst estimates but provided weaker-than-expected revenue guidance. In addition, Netflix announced that it would no longer report subscriber numbers starting in 2025.

Despite the market reaction, analysts remain bullish on Netflix’s prospects, pointing to the company’s dominant position in the streaming space and strong fundamentals. Some analysts even raised their price targets for the stock and welcomed the upcoming changes in subscriber reporting.

Bank of America Raises Price Target

Bank of America analysts increased their price target for Netflix from $650 to $700, citing updated forecast figures and several growth drivers. The company updated its revenue growth expectations for the full year 2024, anticipating healthy revenue growth of 13% to 15%. Operating margin projections for the same period were also revised upward to 25% from 24%.

The higher price target from Bank of America reflects their confidence in Netflix’s world-class brand, leading global subscriber base, position as an innovator, and visibility in growth drivers. These drivers include expanding its advertising business, continued benefits from cracking down on password sharing, a strong content slate for 2024, subscriber growth in developing markets, and pricing strategies.

Macquarie Welcomes Shift Away From Reporting Subscriber Growth

Macquarie analysts expressed support for Netflix’s decision to stop reporting subscriber metrics, comparing it to Apple’s move away from reporting iPhone units to focus on fundamental metrics. They hope that Netflix will provide more meaningful engagement metrics and additional information related to its ad tiers over time. Macquarie maintained its “outperform” rating on Netflix, citing upside potential as the company expands its advertising business and selectively raises prices.

Wedbush Sees Evolution to Slow-Growth, High-Profit Business

Wedbush analysts viewed Netflix’s decision to cease reporting subscriber metrics as a sign of the company’s transition from a high-growth, low-profit business model to a slow-growth, high-profit one. They maintained their “outperform” rating on Netflix, noting that the company has found the right balance with global content creation, cost management, and profitability.

Prior to the earnings report, Wedbush had removed Netflix from its “Best Ideas List,” anticipating challenges in impressing investors in 2024 compared to 2023. Despite the stock’s decline on Friday, Netflix shares have gained nearly 15% since the beginning of the year.

Overall, while Netflix’s stock took a hit following the earnings report, analysts see the company as well-positioned for future growth and profitability in the competitive streaming market.

Read the original article on Investopedia.