Is Netflix losing its streaming crown?
The company's stock slid about 7% in Friday's premarket trading session following its second-quarter earnings report. Netflix missed analysts' expectations on earnings per share but topped their estimates for revenue and global net subscriber additions. It also announced a disappointing subscriber growth forecast.
Market analysts were largely still bullish on the company, but said the results may mark the start of a new era for Netflix.
Here's what four of them said after the report:
Bernie McTernan, senior research analyst at Rosenblatt Securities, said the most important piece of Netflix's report was its guidance that it would see 2.5 million net subscriber additions in the third quarter versus the 5.27 million analysts are expecting:
"That's why the stock's selling off despite the beat on 1Q. What's interesting as well is [the] operating margin guide, 16% for '20. They have a new guide now for '21, which they didn't have before, of 19%. That's roughly in line with consensus. And then also, on free cash flow, they expect this year to be break-even to slightly positive versus a billion burned before. So, almost a flip here. Normally, you have bulls focused on subscriber growth. Well, the good part about this earnings period is actually probably the free cash flow, and the bears who normally focus on the lack of free cash flow probably have something to dig into on the subscribers here."
Stephanie Link, chief investment strategist and portfolio manager at Hightower, said Netflix's miss could be the start of a trend for Big Tech:
"I think the sub numbers for the quarter were very good, very solid, but those numbers had been inching higher … all throughout the quarter. As I mentioned, Netflix app was downloaded 75 million times in the quarter. I mean, that is a huge, huge number. I also think the fact that production is going to restart … means your cash-burn rate goes up. And then on top of that, [the company is] talking about competition. So, to me, down 10% [is] not enough for me to buy it. I really would want to see this thing pull back materially more. But it also makes me worry about some of these other technology stocks that have rallied so much on the work-from-home theme. I think that that is something that we all have to keep in mind and, perhaps, maybe that is what the market is starting to sniff out and which is why tech has underperformed the overall market in the last week."
Sylvia Jablonski, managing director for capital markets and an institutional ETF strategist at Direxion, said Netflix's potential hinged on its ability to keep producing quality content:
"Once production gets up and running, if they have some stellar new adds to the platform, I do think that … whether it's that work-from-home or study-from-home, people will have some hybrid situation that leaves them inside of the house looking for content. So, if they really have stellar content and crush Apple TV, Amazon Prime, all of the different — Peacock — applications out there and programming out there, then I think they have a shot to really pick up in price again. But I would probably wait and see a little bit. And the subscriber number could also change depending on how long the pandemic goes on and people are at home with very little to do. So, I think … keep an eye on it. Wait and see."
Gene Munster, co-founder and managing partner at Loup Ventures, said one of the key takeaways from this earnings report is that Netflix is still a "fantastic company":
"I also have been cautious on this as the stock has added, even with the pullback, $70 billion in market cap this year. And so, I've been wrong on this. I do believe that we are crossing over a point with this guidance that the big takeaway is that, essentially, we need to start to fast-forward and think about 2021 growth. And … they've been pulling forward sub adds. And so, what that means is they've effectively crossed now what the original Street estimate was for net sub adds for the whole of 2020. And the next two quarters, investors are going to largely not be as concerned that, for example, subs [are] down 50% in the September quarter [and] might be down 20% again in December, but really start to focus on what [are] the net sub adds once we've anniversaried all of this? And I believe when you step back — and this is the distinction between a great company, which Netflix is, and [what] I don't believe will be a great stock over the next year. I think when you step back and think about that growth in the beginning of next year and put it up against other companies that also are delivering a lot of value per hour, companies like Apple and what Amazon's doing with their streaming services, TikTok, Peacock, all of this, I think it's going to be difficult for Netflix to be raising prices. I could be wrong, but if they are unable to raise prices, I believe the multiple will compress."
Disclosure: Peacock is the streaming service of NBCUniversal, parent company of CNBC.