Netflix shares reached a two-month high Thursday, on triple their normal trading volume, in the wake of the company’s strong (albeit not blockbuster) third-quarter earnings report.
The stock was at about $298 in mid-day trading, up 4%. While that’s below its high mark for the year of $385 over the summer, it points to continued optimism about the company’s prospects.
Wall Street analysts have helped propel the buy-in, with many of them issuing research notes reflecting positive takeaways from the third quarter. A few analysts did issue downgrades, citing softness in subscriber numbers (which again fell short of company projections, notably in the U.S.) and what they see as limitations on future growth.
Macquarie’s Tim Nollen saluted Netflix, which “in some ways defied the naysayers” with the numbers. But he downgraded the stock to “neutral” from “outperform.” The core reason: “It will be hard for Netflix to grow much more in the U.S., and we suspect pricing power is limited,” he wrote in a note to clients.
Disney, Apple, NBCUniversal and WarnerMedia are all launching major streaming initiatives in the next six months. Of those, only WarnerMedia’s HBO Max is expected to be in the same price ballpark as Netflix, which costs $13 a month for most subscribers. Disney aggressively priced Disney+ at $7, and Apple TV+ went to $5 — or free for one year for anyone buying a new Apple device.
Jeffrey Wlodarczak with Pivotal Research upped his 12-month price target on Netflix to $400 a share, from $350, reiterating his “buy” rating. “The OTT opportunity globally still appears materially underpenetrated,” he wrote in a note to clients, “and the entrance of Disney+ is likely to accelerate the trend away from traditional pay-TV. Netflix has a massive head start on potential competitors, has created substantial barriers to entry and ultimately we think they win the global OTT race and generate material profitability.”
Over time, he added, “this will be a two-horse race (Netflix and Disney) where both horses can win, with Amazon on the periphery and there is a reasonable shot that AT&T management will screw up HBO as a competitor.”
Todd Juenger with Bernstein, a longtime Netflix bull, also said the competition narrative is over-done. True subscription streaming rivalry is “still years away in most markets, and when it comes, we think it will do more to grow the market than steal share from Netflix,” he wrote in a note to clients. He said the company is “not even close” to the saturation point, even in the U.S., where subscriptions have been leveling off in recent quarters.
Nevertheless, Juenger did reduce his price target to $422 from $450, though he ascribed the trim to a stock price that had “run a bit too high” and not a reflection of the quarterly results.
“We were mentally prepared for a long night of soul searching on Netflix,” Juenger wrote. “Fortunately, we get a reprieve from that, at least for another three months.”
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