Here's what every major Wall Street analyst said about Netflix's second-quarter earnings report

Published Fri, Jul 17 20206:28 AM EDTUpdated Fri, Jul 17 20208:06 AM EDT

(This story is for CNBC PRO subscribers only.) Wall Street analysts are standing by Netflix after an underwhelming earnings report that sent the shares lower. The streaming giant came into the second-quarter results with huge expectations as analysts and clients believed the stay-at-home stock would be a beneficiary of the coronavirus pandemic. But Neflix on Thursday provided weaker-than-expected third-quarter guidance of subscriber additions, sending investors looking for cover. The company did beat on revenue for the second quarter, but missed on earnings per share, leaving some analysts scratching their heads and wondering if the momentum can continue. Shares were down 8% in premarket trading Friday. Here's what analysts are saying about the company's second-quarter earnings report: "These earnings are lava," Evercore ISI analyst Lee Horowitz said. The firm said the results were "not good enough relative to exuberant expectations heading into the print which drove NFLX shares to all-time highs." The report also left Stifel analyst Scott Devitt wanting more from the company. "We remain supportive of the long-term opportunity for Netflix but maintain our Hold rating given current valuation and limited near-term catalysts to support further multiple expansion," he said. However, investment firm Jefferies encouraged investors to use the report as a chance to own the stock. "We expressed caution heading into the print given the swift stock move and elevated multiple, but we would use any persistent near-term weakness as an opportunity to accumulate shares," analyst Alex Giaimo said. "While the soft 3Q outlook may put the stock in the penalty box near-term, there is no change to our positive long-term thesis," he added. And JPMorgan urged clients not to overreact. "We'd buy the dip," analyst Doug Anmuth said. Loop Capital's Rob Sanderson perhaps summed it up best. "Will this change investor opinion? Unlikely," he wrote. UBS- Neutral rating, price target to $535 from $500 "Against high expectations for sub performance and a stock that had been up 63% YTD, NFLX's slight beat of Q2'20 sub guide but frwd Q3'20 sub guide and mgmt commentary disappointed – this struck a theme we're generally worried about for earnings season… the interrupted narrative. To date, NFLX had been viewed as a 'stay-at-home' winner and mgmt commentary now points to not a new normal of resumed growth in 2H'20 but headwinds as 1H'20 sub growth (pulled frwd vs trendline) acts as a headwind. Looking out over the next year, we do worry about slower sub growth that might be followed by a less robust 2021 content slate until 2H21." Bank of America- Buy rating, price target to $575 from $625 "We see Netflix 1H results representing a leap forward in penetration and see conservatism in Netflix below Street 3Q paid subscriber guidance given limited visibility into COVID reopening trends. While we see NT subscriber volatility as Netflix works through this influx of new subscribers (newer subs, as always, have higher churn than older ones), we are encouraged by commentary suggesting improved retention/churn metrics across all cohorts vs. pre-COVID levels." Evercore ISI- In line rating "These earnings are lava. NFLX reported 2Q earnings [yesterday]– not good enough relative to exuberant expectations heading into the print which drove NFLX shares to all-time highs. We'd characterize 2Q results as strong, albeit below expectations, and attribute weakness in after-market trading stems more from a much slower growth outlook expressed by management both for the balance of 2020 and through the first part of 2021." Cowen- Outperform rating, price target to $550 from $535 "While the net add guide represents mgmt's internal forecast and best guess, we believe it could be somewhat conservative given i) re-openings have been touch and go amid rising COVID cases in July, with several states re-closing bars, indoor dining, and other events; ii) movie theaters remain largely closed; and iii) churn remains lower than pre-COVID levels across all geo's, even those that are farther along in reopenings." Baird- Outperform rating "Yesterday afternoon NFLX beat Q2 subscriber forecasts, though the Q3 forecast was light, reflecting a potential pull-forward and a weaker content line-up than Q2 and a year ago. While quarterly fluctuations are normal, we remain positive on the long-term trajectory and further share gain opportunity. We are also positive on the strong engagement comments, improving production capabilities and free cash flow progress, including the implied long-term FCF margin opportunity." Oppenheimer- Outperform rating, price target to $515 from $480 "2Q results pointed to a further sub pullforward from COVID-19, with 1H:20 net adds of 26M nearly eclipsing FY19 net adds of 28M. However, new subs typically churn at a higher rate than legacy subs and the global reopening likely causes slower gross adds. 3Q adds guided 59% below topquartile of Street estimates, suggesting recent bulls got ahead of themselves. Global production of originals in most markets resumed. Mgmt. conservatively maintaining FY margin guidance, even though YTD tracking ahead, with likely upside to FY21E, based on comments of potential '21 international price hikes." Rosenblatt- Neutral rating, price target to $400 from $445 "We reiterate our Neutral rating on NFLX shares but lower our price target to $400 from$440. NFLX's dominant position as a global streaming player is not in question, but we are cautious NFLX may have pulled forward to the less steep part of the S-curve. Given our expectation of decelerating revenue growth we continue to believe these valuation levels are difficult to justify." Pivotal- Buy rating, price target to $600 from $580 "Clearly boosted by global stay-at-home orders NFLX reported: materially better than expected +300% y/y growth (to +10.1M) net new paying subscribers, lower than forecast expense growth (including lower marketing costs and lower costs related to temp content production shutdowns) which combined with a pushback in original content production spend led to much higher than forecast +$899M in positive free cash flow (vs. our +$422M forecast). " Jefferies- Buy rating, price target to $550 from $520 "While the soft 3Q outlook may put the stock in the penalty box near-term, there is no change to our positive LT thesis. We view NFLX as a consistent high double-digit growth story with sizable margin expansion over time. We expressed caution heading into the print given the swift stock move and elevated multiple, but we would use any persistent near-term weakness as an opportunity to accumulate shares." Barclays- Overweight rating "The debate going into the quarter was about whether Netflix's 1H extraordinary performance was a structural reset or a growth pull forward due to Covid-19. On the surface, the strong headline 2Q performance but weak 3Q guide seem to reinforce the latter. However, we believe there were a number of nuances which actually point to the former. Management commentary around churn behavior across regions and aging cohorts combined with renewed openness to price increases suggests underlying strength." Credit Suisse- Downgraded to neutral from outperform, price target to $525 from $550 "We are downgrading Netflix from an Outperform to a Neutral due to a lack of near term catalysts. Serious investor concerns regarding the "3 C's" (competition; content quality; cost of content) have waned, appropriately so in our view, while Netflix has benefitted from a particularly strong content slate and the COVID crisis has been a significant accelerant for the shift to streaming globally. " Bernstein- Outperform rating, price target to $573 from $504 "We believe management continues to be conservative in their guidance (why would they not be? Nobody knows what to expect in the throes of this pandemic. There is no precedent). Reasons to believe there is upside to the Q3 guide include: a) July net paid adds, to-date, have resumed growth (after a flattish June); and b) churn remains at all-time lows, including in the EU where much of the population has returned to work." Morgan Stanley- Overweight rating, price target to $600 from $575 "Beyond the outperformance in the quarter, we highlight three positive trends heading into 2H20 and beyond. First, churn continues to be down YoY and is below pre-COVID (early 2020) levels even as many geographies have re-opened. This suggests that the extent of the demand "pull forward" effect is modest. Second, engagement trends have come off peak levels but remain above pre-COVID levels, suggesting that Netflix could consider price adjustments earlier than we are forecasting." Needham- Underperform rating "1) Live sports was dark, cinemas, theaters, music festivals, theme parks, cruises etc were closed for all of 2Q20, NFLX was the only company consistently airing new content throughout the quarter, and billions of potential subs were sheltering at home owing to health or government official directives. How does it get any better for NFLX? 2) We agree with NFLX that some sub adds were pulled forward from future periods. We believe NFLX valuations have downside risk if/when NFLX adds return to a more normalized trend line." Goldman Sachs- Buy rating, price target to $600 from $670 "While we expected even more signiﬁcant upside to consensus estimates given the strength in downloads and declining churn, looking beyond the current crisis we continue to believe that Netﬂix's massive content investments, global distribution ecosystem and improving competitive position will further drive ﬁnancial results signiﬁcantly above consensus expectations." Piper Sandler- Overweight rating, price target to $534 from $500 "Netflix noted a slowdown in net adds in June after the company added 26M subs through 1H20 compared with 28M for all of 2019. The company views the spike in subs as a pull forward to a certain degree, but remains confident around Q3 growth and mitigated churn. We view the sub guide as conservative and believe the current dearth of viewing options, including lack of sports, positions Netflix as the go-to option. In multiple Piper surveys > 60% of respondents indicated Netflix was the video platform they most relied on and would likely maintain a subscription post Covid." Canaccord- Buy rating "While lighter-than-expected Q3 guidance implies that there may have been a pull forward of demand over recent months, management reiterated that its 2H20 and FY21 content slate remains largely intact despite the impact of COVID-19 on production globally, which should support further subscriber growth over time. Netflix's content library investment allowed the company to evolve from a platform to watch re-runs to a quality source of original content, and now a destination for some of the biggest movie premieres, which makes the service an essential part of any consumer entertainment bundle." Stifel- Hold rating "While visibility remains limited due to the uncertain progression of the health crisis, the company expects some moderation of the stay-at- home trends that have supported accelerated subscriber gains in 1H:20. The possibility that a portion of 1H subscriber gains have been pulled-forward suggests more modest sub net adds through the remainder of 2020. We remain supportive of the long-term opportunity for Netflix but maintain our Hold rating given current valuation and limited near-term catalysts to support further multiple expansion." Citi- Neutral rating "Recall, our Neutral stance on Netflix has been based on the notion that net adds are a function of content spend. With content spending lower than normal (due to COVID), we wonder if the softer 3Q20 guide is more than just a 'pull forward' into 1H20. It may, perhaps, speak to Netflix's ability to attract gross adds - and keep churn low - if content spending is flaccid. If true, there are two sides to the Netflix coin. On one hand, a resumption of content spend could cause net adds to reaccelerate. On the other hand, without heavy spending, sub growth is muted." Loop Capital- Buy rating "We expected a strong sub quarter but did not anticipate the lopsidedness between the domestic and international results. We were expecting the improved free cash flow guidance but were not expecting the company to say its 'need for external financing is diminishing.' Will this change investor opinion? Unlikely. The bulls will point to the strong first half results, improved operating margins and 15% free cash flow margin as an early indicator of future profitability which should be much higher with greater scale. The bears will say the perfect storm of the pandemic makes the current results less meaningful." JPMorgan- Overweight rating, price target to $625 from $535 "NFLX shares traded off 9% after-market given elevated expectations & recent stock appreciation, but we'd buy the dip. In the 1st 6 months of 2020 NFLX added 93% of the subs it added in all of 2019. While pull-forward likely leads to Y/Y net add declines in 2H20, we believe it will make NFLX a bigger business 12/24/36 months out etc as more consumers have been exposed to NFLX's breadth/quality of content & superior experience, w/considerable room for Int'l penetration gains. " Wells Fargo- Equal weight rating, price target to $470 from $460 "Feels like a Swan Song of a quarter – With 10mm Q2 net adds and 26mm in H1 NFLX has succeeded in gaining and retaining subs worldwide at a break-neck pace. The question now will be if the sub party is over. With a Q3 guide of +2.5mm vs our/street previous 6mm the story is now arguably much more about churn, pricing and FCF (and succession?)." RBC- Overweight rating, price target to $610 from $500 "NFLX posted a Beat & Lower Quarter, with key positives being the 2nd highest Sub Add quarter ever (10.1MM), record-high 22% Operating Margin & '20 FCF outlook of breakeven-to-positive, and the negative being a Q3 outlook for 2.5MM Sub Adds, well below Street. We believe the long-term thesis is stronger – raise PT to $610 & reit Outperform."

Netflix Co-founder and Chief Executive Officer Reed Hastings.

Stephane De Sakutin | AFP | Getty Images

(This story is for CNBC PRO subscribers only.)

Wall Street analysts are standing by Netflix after an underwhelming earnings report that sent the shares lower.

The streaming giant came into the second-quarter results with huge expectations as analysts and clients believed the stay-at-home stock would be a beneficiary of the coronavirus pandemic.

But Neflix on Thursday provided weaker-than-expected third-quarter guidance of subscriber additions, sending investors looking for cover. The company did beat on revenue for the second quarter, but missed on earnings per share, leaving some analysts scratching their heads and wondering if the momentum can continue.

Shares were down 8% in premarket trading Friday.

Here's what analysts are saying about the company's second-quarter earnings report: