Netflix shares have been under pressure ever since the company reported disappointing second quarter results in July, dropping nearly 20% since then, and Bernstein on Thursday sought to answer investors' questions about how long this slump will continue.
"The Q2 miss, coupled with the upcoming Disney+ launch in the US (and Apple as well, and more to come), has come together to make investors reevaluate their confidence in Netflix's subs and pricing growth," Bernstein analyst Todd Juenger wrote in a note, adding that "investors are increasingly asking us: 'where is the floor?'"
Juenger noted that it's difficult to make use of a historical basis for valuing Netflix, because the "company has gone through several transformations in the last decade." However, using 2017-era valuation method, Bernstein calculated its "floor price" for Neftlix stock is $230 a share. That represents a drop of over 20% from its current price.
Netflix shares slid 1.7% in trading to close at $286.60 a share. Both for the year and in recent months, the technology stock is lagging far behind its four other FAANG peers – Facebook, Amazon, Apple and Google-parent Alphabet.
Despite Netflix' potential for a further downside, Bernstein is sticking to its outperform rating on Netflix stock, with a $450 a share price target. That makes the target nearly double the firm's "floor price" for the stock. Juenger explains that, competitively, Bernstein only sees pricing as a threat to Netflix that "causes us any concern."
Yet Juenger thinks Netflix will retain its pricing power. That's due to a larger expected library than the coming Disney+ or Apple TV services while commanding a premium that is "quite small in absolute dollars," at about $5 per month more than its competitors.
"Absent from most investor conversations is the opposite case, i.e., what happens to NFLX stock if the business powers through," Juenger said.
Juenger said Netflix would "surely" be priced "at least back to where it was before" it missed quarter two earnings, "if not higher." He then sees Netflix stock getting back closer to $400 per share and his firm's price target.
– CNBC's Michael Bloom contributed to this report.