Here's what every major analyst said about Netflix's disappointing earnings report

Published Wed, Oct 21 20206:25 AM EDT

(This story is for CNBC PRO subscribers only.) Shares of Netflix tanked after the streaming giant reported substantial slowing subscriber growth when it reported third-quarter earnings on Tuesday after the bell. Shares were lower by 5% in premarket trading. The company also issued a forecast that missed Wall Street estimates . Netflix did, however, beat on revenue and said in its letter to shareholders that the coronavirus pandemic was a unique situation and that it expected subscriber additions to abate. Still, it's too soon to give up on the stock, according to Wall Street analysts. Here's what analysts said about Netflix's earnings report: "While the stock will likely get hit on the net add miss, we see many fundamental positives from the 3Q print," Jefferies analyst Alex Giaimo said. Giaimo reminded shareholders that Netflix still has robust content, a burgeoning free-cash-flow story, and likely price hikes which makes the story still attractive. "History says to accumulate shares on earnings dips and own the stock longer-term, and we recommend sticking to that strategy," he said. The feeling was similar for KeyBanc analyst Justin Patterson who said investors mustn't overreact. "Yes, subscribers were light, but this is the quarter in which it was most likely to happen," Patterson wrote. And even Goldman Sachs admitted that it "expected even more signiﬁcant upside to consensus estimates given the strength in downloads and slow pace of reopening," analyst Rod Hall said. "We clearly underestimated the churn from more recent subscribers," he wrote. But the firm said it wasn't giving up on the stock and urged clients not to do the same. Yet other analysts like Credit Suisse's Doug Mitchelson said the pandemic was a rare opportunity for Netflix to add customers and investors shouldn't get too caught up in those numbers. "Overall, longer-term shareholders should be reassured underlying trends in the business appear quite strong," Mitchelson said. The pandemic is not ending anytime soon, Bernstein analyst Todd Juenger told clients, and "if this causes a dip, we would buy it." Yet perhaps Raymond James summed up Netflix best. "Overall, this quarter is not likely to change anyone's mind on the stock," analyst Andrew Marok said. Cowen- Outperform rating "NFLX reported a slight net add miss of 2.2MM vs. guide of 2.5MM (a negligible miss in our view on a base of ~195MM subs), following record 1H that led to pull forward (as expected); churn remains below pre-COVID levels. 4Q sub guide of 6MM came in ahead, helped by robust Originals slate. Margin & FCF trajectory also better; maintain Outperform & $625 PT. ... .The long-term opportunity remains significant in our view." Wells Fargo- Equal weight rating, price target to $510 from $470 "Visibility on operating leverage is improving while the biz certainly benefits from 2020's pull-forward in sub acquisition. In our view, at the current valuation a lot of this is in the price though, and optics are arguably less favorable in the medium-term as old habits of net add trading will die hard. We're looking for upside/downside to cash operating leverage to get more bullish/bearish, which we think is fitting since Netflix is set to begin a new chapter – profitability – in its corporate history." Bank of America- Buy rating "We see Netflix ability to continue to grow despite added competition, live sports, reopening, and a significant 1H pull-forward as an indication they are strengthening their value prop to consumers and see a long runway to continue to increase market share from linear TV and believe they are in a strong position to continue price increases in 2021 (US price hike in 2021 likely in our eyes)." Barclays- Overweight rating "In addition, if NFLX decided to maintain even a moderate amount of leverage on the business and to use this capital for capital returns, the scale of buybacks could be significant. This conversation is undoubtedly premature at this point but is likely to become a bigger part of the story in the coming year. Overall therefore, we continue to like Netflix as a core holding despite the miss in the quarter." Oppenheimer- Outperform rating "Main takeaway is that NFLX is extending its content moat with near full production, while Hollywood studios are just resuming production as of mid-September. Impact will mostly be felt in 1H:21. Conservatively maintaining FY21E margin targets, with likely upside from content/marketing leverage and potential price increases." KeyBanc- Outperform rating "Our initial read is this is an overreaction: yes, subs were light, but this is the quarter in which it was most likely to happen. The important trends are: 1) retention is healthy; 2) the content lineup for 2021 is solid (includes Stranger Things, a movie with The Rock, and The Witcher Season 2); and 3) 2021 FCF guidance is well above expectations at a loss of $1B to breakeven (vs. our and the Street's losses of $0.76B and $1.49B, respectively)." Rosenblatt- Neutral rating "We reiterate our Neutral rating on NFLX shares and $400 price target. We have concerns for current expectations on '21E subscriber growth, and we do not believe the other side of the pull forward of demand is reflected in consensus. For the second consecutive quarter FCF was the bright spot of results, the guide for '21E was above our expectations and it encouragingly contemplates the return of global production. We remain on the sidelines on NFLX given our relatively low expectations for future growth and what we believe the market is pricing in." Credit Suisse- Neutral rating "Overall, longer-term shareholders should be reassured underlying trends in the business appear quite strong; 2H20 sub growth is just working off the 1H20 COVID-driven pull forward. Still, with upside to 2H20 net adds off the table (and no increased visibility for next year), we expect Netflix shares to continue to consolidate in its trading range. Also: (a) activations were noted as strong, and newer customer churn slightly better than normal; (b) engagement with the service was up double-digits on average against tough 3Q19 comps." Jefferies- Buy rating, price to $585 from $570 "While the stock will likely get hit on the net add miss, we see many fundamental positives from the 3Q print (rich pipeline, inflecting FCF story, potential price hikes). History says to accumulate shares on earnings dips and own the stock longer-term, and we recommend sticking to that strategy. While bears will push back on slowing trends, we see many levers the company can pull to maintain healthy double digit rev growth over time. Take advantage of the pullback and Buy the stock, history is on your side. NFLX has now traded down on 9 of the last 13 prints. If you owned the stock over that time period, you returned +163% vs the NASDAQ +80%. Buying earnings dips has been a winning strategy." UBS- Neutral rating "Against rising expectations for sub performance (despite a more modest forecast from the company itself), we expect investors now will focus on how long NFLX stock needs in order to digest the slower gross add trajectory as outsized growth from 1H'20 is lapped & comped against. Overall, mgmt's fwd commentary was roughly inline w/ sub add expectations & generally positive on margin/FCF. " Canaccord- Buy rating "Netflix's Q3 revenue came in largely as expected, although subscriber net additions decelerated more than expected following a pandemic-driven pull-forward of demand in 1H20. Engagement remained strong, reflecting a variety of popular original titles and growth in the audience of licensed and acquired shows. ... .We continue to view Netflix as well-positioned to maintain its leadership position in streaming entertainment as it approaches 200M global subscribers and executes on strategic initiatives across TV, film, animation, and local language content." Pivota- Buy rating, price target to $650 from $660 "NFLX reported a solid essentially in-line 3Q subscriber result and nicely better than expected financial results (including $1.15B in 3Q free cash flow well ahead of our $480M forecast and $2B in '20 free cash flow vs. flat guidance previously and our flat forecast). 2020's sizeable free cash flow offers investors a glimpse at the inevitable future for NFLX = healthy material free cash flow growth and helps squash the misplaced idea that NFLX is not fully capable of generating significant free cash flow." BMO- Outperform rating, price to $700 from $625 "Management wouldn't quite commit to it but we will: annual FCF losses are likely over after initial 2021 guidance of ($1B) - breakeven (that we expect to be exceeded) + formally speaking to a '300 bp per year long-term trajectory' for annual OI margin expansion. We recommend buying shares as the short-term focus on subs gives way to the reality of consistent FCF generation and the shift to questions about FCF uses. We also reiterate that NFLX's lack of antitrust/regulatory overhang vs. rest of FAANG remains underappreciated." Raymond James- Market perform rating "Subscriber adds were impacted by a pull-forward in demand from the record first-half net additions figures. Despite the lower-than-expected subscriber growth, underlying trends in the business remain solid, with engagement and retention growing y/y. Overall, this quarter is not likely to change anyone's mind on the stock. " JPMorgan- Outpeform, price target to $615 from $625 "We recognize that NFLX shares could be rangebound N-T as investors digest lower subs, but we're encouraged by 4Q content & expect revised sub expectations to be achievable for 4Q & 2021. We expect further price increases in select markets, but still don't anticipate a US increase until 2Q/3Q 2021, roughly 2 years after the most recent pricing change." Morgan Stanley- Overweight rating, price to $640 from $630 "200mm subs, 300k 'light' results and guide – feels like noise: At some point, quarterly net additions guidance may be more distracting then informative. The business is reaching such a level of scale that a point estimate for net additions amplifies the adds in a three-month span more than it should. Netflix pointed out what is fairly intuitive about 2021, it faces incredibly challenging compares." Bernstein- Outperform rating, price target to $591 from $573 "If this causes a dip, we would buy it. ... .The 2H20 net adds deficit is offset by slightly higher net adds going forward and better FCF in Q3, FY20, and forward. Those offsets are roughly value neutral to our $573 target price but we believe there is much greater chance of over-delivery, vs under-delivery, over the near/mid horizon. We believe the pandemic impact is more likely to last longer than expected, rather than shorter. This would simultaneously increase consumer demand for streaming video and decrease available content on competing services (production shutdown)." Goldman Sachs- Buy rating "We clearly underestimated the churn from more recent subscribers, which at Netﬂix's scale, now just under 200mn subscribers globally, means even small moves in the churn rate can signiﬁcantly impact quarterly net subscriber additions. ... .While we expected even more signiﬁcant upside to consensus estimates given the strength in downloads and slow pace of reopening, 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." RBC- Outperform rating, price target to $630 fom $610 "NFLX posted mixed Q3 results, with Subs Adds coming in weaker than expected, but Revenue & Operating Income stronger than expected, due mostly to favorable regional ARPU mix shift and Marketing spend leverage. Q4 outlook in line with Street. Long-term thesis still holds. ... .Tho the Q3 Sub Adds were disappointing, we believe the NFLX Long Thesis is well intact." Evercore ISI- In line rating "Slowing subscriber, and revenue, growth creates a tough setup ahead for the stock: following huge subscriber momentum reported earlier in the year, Netflix reported a slowdown in 3Q as COVID restrictions eased globally, with 2.2M global net adds coming in below both investor expectations (we believe buy side was looking for ~5M) and company guidance." Needham- Underperform rating "Since NFLX's COVID run-up between March and July amid COVID lock-downs, NFLX has remained in a trading range since before its 2Q20 earnings report, regardless of sub adds. If growth stocks normally trade on sub adds as a lead indicator of future value, what's the market saying about NFLX growth credentials?" MoffettNathanson- Neutral rating "In our view, it would be reasonable for Netflix to remain range bound for the next few months (pending any additional price hike news) as the company returns to a more normalized level of net subscriber growth. At the same time, if we see a massive surge in the coronavirus we could see the stock riding a new swell of tailwinds to even higher levels." Citi- Neutral rating "Netflix delivered 3Q20 revenue above Citi and the Street's expectations. However, 3Q20 net adds came in a bit below Citi and the Street's forecasts. And, while management's guidance for 4Q net adds is generally in-line with Street estimates, we suspect that prospects for the totality of 2H20 net adds (where we estimate buy-side expectations were for around 9 to 10 million net adds) may be below investors' expectations."

Reed Hastings, chief executive officer of Netflix

Patrick T. Fallon | Bloomberg | Getty Images

(This story is for CNBC PRO subscribers only.)

Shares of Netflix tanked after the streaming giant reported substantial slowing subscriber growth when it reported third-quarter earnings on Tuesday after the bell.

Shares were lower by 5% in premarket trading. The company also issued a forecast that missed Wall Street estimates.

Netflix did, however, beat on revenue and said in its letter to shareholders that the coronavirus pandemic was a unique situation and that it expected subscriber additions to abate.

Still, it's too soon to give up on the stock, according to Wall Street analysts.

Here's what analysts said about Netflix's earnings report: