Wall Street Split On Netflix As Price Hikes Hurt Subscriber Growth

Shares of Netflix are sliding after the company reported second quarter results last night and several Wall Street analysts voiced concern over increased subscriber turnover caused by the price increase.
By The Fly Staff ,

Shares of Netflix (NFLX) - Get Report are sliding after the company reported second quarter results last night and several Wall Street analysts voiced concern over increased subscriber turnover, or "churn," caused by the streaming service's price increase. In a post-earnings research note this morning, UBS analyst Doug Mitchelson downgraded Netflix to Neutral, saying the price increases owing to "un-grandfathering" are proving to be more challenging than expected. Conversely, a number of more bullish analysts stuck with their Buy recommendations and touted the post-earnings slide as an opportunity to buy the stock.

PRICE INCREASE CHALLENGING: Following yesterday's earnings release, UBS' Mitchelson downgraded Netflix to Neutral from Buy, stating that the company's price increases have presented more of a challenge than was expected. Mitchelson lowered his U.S. net subscriber additions estimate for 2016 by 1.05M to 3.95M and his International net add forecast by 1.5M to 11.5M. Additionally, the analyst lowered his price target on the shares to $92 from $130 citing his lower subscriber forecasts. His peer at Wedbush was also bearish on the stock this morning, lowering his price target on Netflix's shares to $50 from $45 and reiterating an Underperform rating. Analyst Michael Pachter told investors he believes that, in the wake of Netflix's price increases, slowing U.S. growth will likely persist for the next two quarters as the company "un-grandfathers" as many as 30M more domestic subscribers over the next five months. Pachter sees Netflix shares as "overvalued," saying the stock's price fails to address the potential for meaningful competition from Amazon (AMZN) - Get Report .

SHORT-TERM HEADWINDS: Conversely, Piper Jaffray analyst Michael Olson remains more optimistic, reiterating an Overweight rating and $122 price target on Netflix's shares. He attributed the weaker than expected U.S. and international subscriber additions reported last night to short-term headwinds. Netflix is facing a higher degree of churn from un-grandfathering related to the price increase, which will be largely complete by the end of the third quarter, Olson contended. Further, the upcoming Summer Olympics could negatively impact net sub adds, he added. However, Olson pointed out that he does not believe either will have an impact on the long-term penetration of the service. JPMorgan analyst Doug Anmuth also expects Netflix to work through its pricing changes in the second half of 2016 and emerge as a larger, more profitable company into 2017. He recommended investors buy the shares on any further weakness and reiterated an Overweight rating on the name. However, Anmuth lowered his price target on the stock to $116 from $125 as "pricing pains" persist in the near-term.

PRICE ACTION: In late morning trading, shares of Netflix have dropped about 14% to $85.11.

Reporting by Jessica de Sa-Mota.

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