- Netflix’s (NFLX) - Get Free Report user loss in Q2 was not as steep as expected. That could be a good portend for future user trends.
- Even under a turbulent macro scenario, Netflix has performed well, considering its focus on generating free cash flow.
- The implementation of a lower-cost service through an ad-supported tier could bring an important increase in subscribers over the next year.
Prolonged Period Of Subscribers Losses Is Unlikely
Following Q2 earnings, Netflix reported that it lost "only" 970,000 subscribers, contrary to market estimates of 2,000,000. Stifel Nicolaus’ analyst Scott Devitt saw signs of stabilization in the company’s emerging subscriber base.
Devitt sees a long period of subscriber loss becoming less and less likely. Therefore, he has a bullish recommendation on Netflix. He’s assigned their shares a price target of $250, implying an upside of about 10%.
Citi analyst Jason Bazinet saw Netflix's Q2 outlook as better than what was feared by Wall Street. He has reinforced his bullish position on the stock and forecasts a $275 price target.
Appropriately Responding To Macro Headwinds
According to Michael Pachter of Wedbush, Netflix has been handling macro headwinds well. The company has eased costs to accommodate slower revenue growth and has thus become more focused on generating free cash flow.
While skeptical that the company will return to “hyper revenue growth” in the future, Pachter sees Netflix's positioning as prudent. He sees the streaming giant becoming an increasingly profitable company, so long as it is able to maintain steady, reasonable revenue growth.
The analyst also sees full-year guidance for Netflix's free cash flow to be $1 billion. Year-over-year growth thereafter could serve as a bullish catalyst for Netflix shares. As such, Pachter currently has a “buy” recommendation and a NFLX price target of $280 per share.
Not long ago, via his Twitter feed, Pachter commented that he was criticized when he saw Netflix overvalued at $690. Today, he sees NFLX as being undervalued, with shares having come down almost 70% from their all-time highs.
Ad-supported Tier Could Add 4 Million Members
With Netflix’s plans to bring a lower-cost service to customers via an ad-supported tier, Cowen analyst John Blackedge sees a potential of four million new members for the company by 2023 generating. He sees those members generating about $17 in revenue per person each month. Blackedge remains bullish on Netflix and gives the stock a “buy” rating.
On the slightly more conservative side, Piper Sandler analyst Thomas Champion, sees Netflix generating about $1.4 billion in extra revenue per quarter when it implements its ad-supported tier. Champion still maintains a “neutral” rating on NFLX, however.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting MavenFlix)