A Shocked Wall Street Reacts To The Netflix Implosion

For the second quarter in a row, Netflix stock has cratered after reporting earnings: NFLX plunged 28% – losing $42 billion in value – after the company announced that not only did its paying subs shrink for the first time since 2011 in the first quarter, but the company forecast the loss of another 2 million subs in the current quarter. Coupled with the devastation from three months ago when Netflix plunged 21% after reporting similarly dire results and dismal guidance, “Netflix is on the verge of losing more than $90B in market cap (total) in its first session following the last 2 earnings reports.” according to CNBC.

Of course, in this case one chart is truly worth a thousand words:

But while the market was clearly surprised (and disappointed) with the NFLX results, few were more shocked than the Wall Street analysts covering the company. Considering that 31 analysts had NFLX at a Buy one day before earnings (with just 3 sells), with an average price target of $500 (vs the closing price of $348.61 before the earnings announcement)…

… one can see why Stephanie Link couldn’t wait to see what “Let’s see what those 31 sell side analysts that have a buy on it do tmrw.”

Tough afternoon for $NFLX. Let’s see what those 31 sell side analysts that have a buy on it do tmrw.

— Stephanie Link (@Stephanie_Link) April 19, 2022

One can also see why the best word to describe the laughable downgrade parade that has followed today by the same people who are paid to predict that future – and not to create momentum-chasing, circle jerking echo chambers – is “clowns”…

clowns pic.twitter.com/inLuA6QpHV

— IV (@iv_technicals) April 20, 2022

… with one “clown” in particular sticking out.

The world needs an inverse Cramer ETF more than it needs a spot BTC ETF. pic.twitter.com/GWuEgwoIvh

— Jim Bianco biancoresearch.eth (@biancoresearch) April 20, 2022

Sure enough, as of this morning nobody is more “shocked” than this group of so-called experts, because whereas two days ago, there were 31 buys and 3 sells, there are now “only” 20 buys and 5 sells with the average price target plunging by 25% from $500 to $378 (and down almost 50% from the $680 at the start of the year). And while it may seem remarkable that there are still 20 buys when the stock has cratered from $700 to $250, consider that this is the lowest number of buy ratings since 2015!

So what is the sellside’s excuse this time? While we realize it’s a terrible waste of time to read the following garbage, because – well – it’s mostly garbage from sellside lemmings who are trying to justify their lack of calling a move correctly, here is a summary of all the most notable research calls, including that of JPMorgan whose analyst Dan Anmuth ditched his Overweight (i.e., Buy) reco which had been in place since January 2013 with a $600 price target most recently, to go Neutral today for the first time in almost a decade. 

JPMorgan (cuts to neutral, PT cut to $300 from $605)

• Bigger factor was management’s acknowledgment of relatively high household penetration when including account sharing and increased competition
• Near-term visibility on growth plans is limited

Pivotal Research Group (cuts to sell from buy, PT to $235 from $550)

• This was “what can only be called a shocking 1Q subscriber miss and weak subscriber & financial guidance”
• The firm now sees “materially slower subscriber growth at a higher cost,” and there is likely to be substantial uncertainty around the stock for the rest of the year

BofA (downgrades to underperform from buy, PT to $300 from $605)

• “The Street now knows that the low guide last quarter was not an aberration, and we expect it will take a while for investors to believe NFLX can return to growth”

Wells Fargo Securities (downgrades to equal weight from overweight, PT to $300 from $600)

• “Negative sub growth and investments to reaccelerate revenues are the nail in the NFLX narrative coffin”
• The company’s outlook is now “clear as mud”

Piper Sandler (cuts to neutral, PT to $293 from $562)

• Subscribers have slowed and we struggle to see a return to the pre-Covid net add cadence
• Password sharing and ad-supported tiers look promising, but implementation is more than two years away

UBS (cuts to neutral, PT cut to $355 from $575)

• Views Netflix as a long-term winner, however rising competition, macro headwinds and market saturation will continue to weigh on subscriber growth
• While efforts to crack down on account sharing and a new ad-supported tier could enhance financial performance, such efforts will take 1-2 years to play out

Stifel (cuts to hold, PT cut to $300 from $460)

• Expect investors to take a wait and see approach to the company’s initiatives to reinvigorate growth, which will likely take several quarters or years to develop

Needham (upgrades to hold from underperform)

• The firm is positive on Netflix adopting an ad-driven subscription tier and cracking down on password sharing, although it will take a while for these measures to materially drive growth

Bloomberg Intelligence

• “The forecast for 2 million losses in a seasonally soft 2Q will further deepen the bear thesis”
• The company “may need a fresh act like advertising or a bigger push into gaming” in order to revitalize growth

Of course, with everyone finally turning bearish on NFLX, with some floating the suggestion that it’s time to kick out the N from FANG, one can safely say that amid this universal capitulation, the time to buy the stock is now.