Netflix hit with 10 downgrades as Wall Street analysts bail after 'shocking' subscriber loss

Published Wed, Apr 20 20226:57 AM EDTUpdated Wed, Apr 20 202210:52 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Netflix was hit with a wave of downgrades from Wall Street firms after the streaming giant unexpectedly shed subscribers during the first quarter, raising questions about its long-term growth potential. Shares of Netflix were down more than 35% to about $224 per share in morning trading as investors reacted to the report, which included the company guiding for further subscriber losses in the second quarter. Netflix executives said they are exploring a crackdown on password sharing and adding advertising as a way to offset slowing growth. In the aftermath of the report and conference call, at least ten different Wall Street firms cut their ratings on the stock, including two that issued rare double downgrades. Bank of America's Nat Schindler moved to underperform from buy, saying in a note to clients that it would take time for Netflix to prove itself as a good investment again. "The Street now knows that the low guide last quarter was not an aberration, and we expect it will take a while for investors to believe NFLX can return to growth," Schindler wrote. Pivotal analyst Jeffrey Wlodarczak also downgraded Netflix two notches to sell from buy, saying the stock could extend its losses even further. "After what can only be called a shocking 1Q subscriber miss and weak subscriber & financial guidance we reduced our subscriber forecasts and pushed back our profitability forecasts substantially which led to a dramatic nearly 60% reduction in our target price to $235," Wlodarczak wrote. JPMorgan's Doug Anmuth, meanwhile, downgraded the stock to neutral from overweight, saying the quarter "conceded every part of our bear thesis." Wells Fargo's Steven Cahall moved to equal weight from overweight, and said the "narrative is dunzo for now." Analysts were generally welcoming of Netflix's plans to limit password sharing and introduce an advertising tier, but those developments may take too long to play a big factor in the stock's current outlook. Piper Sandler's Thomas Champion downgraded the stock to neutral from overweight, saying the hit for the next two years would be substantial. "While password sharing is being addressed and a new ad-supported tier sounds viable, we substantially lowered sub adds forecasts for '22/'23. It's a lower growth, lower visibility model, prompting us to move to the sidelines." Atlantic Equities analyst Hamilton Faber downgraded the stock to neutral from overweight and noted there would be an increased focus on customer retention with new additions slowing. "The 2m Q2 sub loss guidance is only possible with a pick-up in churn. Some of this will be temporary due to major price increases in the US, Latam ... and the UK, but the fact this has offset penetration opportunities in key regions such as APAC and EMEA is alarming" Stifel, Oppenheimer, CFRA and UBS also downgraded the stock to hold equivalents. Here are some of the notable price target changes from Wall Street firms: Bank of America: to $300 from $605 Pivotal: to $235 from $550 JPMorgan: to $300 from $605 Wells Fargo: to $300 from $600 Piper Sandler: to $293 from $562 Stifel: to $300 per share from $460 UBS: to $355 from $575 Credit Suisse: to $350 from $450 Deutsche Bank: to $300 from $465 — CNBC's Michael Bloom contributed to this report.

Co-founder and director of Netflix Reed Hastings delivers a speech as he inaugurates the new offices of Netflix France, in Paris on January 17, 2020.

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