Q1 bomb triggers Wall Street downgrades

  • Netflix plunged 28% on Wednesday after its first-quarter results showed a loss in subscribers.
  • The streaming company also forecast a further drop in subscriber numbers in the second quarter.
  • Here’s how three Wall Street analysts reacted to Netflix’s first-quarter earnings bombshell.

Netflix stock plunged 28% on Wednesday after the


Diffusion

The company announced mixed first-quarter results that revealed its first loss of subscribers in a decade.

Late Tuesday, the company said it had lost 200,000 subscribers on a net basis, falling short of management’s forecast of 2.5 million net subscriber additions. And


netflix

expects the pain to continue into the second quarter, after forecasting a drop of 2 million subscribers.

“Our relatively high household penetration — if you include the large number of households sharing accounts — combined with competition, creates headwinds for revenue growth,” Netflix said in its shareholder letter.

The company said it plans to better monetize the roughly 100 million households that share passwords to use the service, and will explore a cheaper tier with ads to give customers more choice in how which they subscribe to and view Netflix content.

But both of these potential growth levers are likely one to two years away, and Wall Street analysts hit the stock with a series of downgrades on Wednesday.

Here’s how three Wall Street analysts reacted to Netflix’s subscriber slump in the first quarter.

JPMorgan: “A quarter of radical change for Netflix.”

“The company basically conceded on every key point of the bear thesis… short-term visibility is limited, our net adds in 2022 have fallen sharply from 16 million to 8 million, and there’s not much- something to get excited about over the next few months beyond the much lower new share price.”

JPMorgan downgraded the stock from overweight to neutral and lowered its price target to $300 from $605.

Goldman Sachs: “We see Netflix as a multi-year demo story.”

“It’s not additive to downgrade the stock at current levels, as Netflix now trades closer to a low-growth traditional media distribution/content business than a high-growth disruptive tech company. Improving Sentiment investors via growth and/or sustained free cash flow generation, we see Netflix as a multi-year demo story with a more likely catalyst outside of the next 6-12 months.”

Goldman Sachs reiterated its neutral rating and lowered its price target to $265 from $420.

Stifel: “All good growth stories come to an end.”

“While some headwinds highlighted by management (weaker macro, inflation) should prove transitory, the business will still need to address a number of more age-old issues that could weigh on growth, including increased competition, the potential maturity of major markets and the prevalence of password sharing Netflix has several levers to potentially revive growth, including the introduction of an ad-supported subscription plan and improved monetization of shared accounts; however, we note that both offers are in their early stages of development and are not expected to materialize until 2H:23/2024.”

Stifel downgraded the stock to hold for buy and lowered its price target to $300 from $460.

Richard L. Militello