Strong earnings may not be enough to bring Netflix out of its funk, Credit Suisse says

Published Tue, Jul 19 20226:37 AM EDT

Netflix 's latest earnings results may not be enough to bring the beaten-down stock out of its funk, according to Credit Suisse. The streaming giant is set to report earnings Tuesday after the bell. Back in April, Netflix shares plummeted a shocking 35% on the back of a subscriber loss for the first time in over a decade. In the months since, the stock has continued its downward spiral and is now down more than 68% for the year. And there may be more trouble coming Netflix's way. Credit Suisse is modeling an astounding 2 million subscriber loss this quarter and expects advertising questions — along with worries over heightened competition — to linger. "While a meaningful 2Q or 3Q subscriber beat or miss might temporarily move Netflix shares post-earnings, we expect shares will revert to their trading range as visibility will remain low and the company's pivot to advertising does not even begin in earnest until late 2022," analyst Douglas Mitchelson said. "Its minimal FCF generation hinders taking a value stance on the shares, while a substantial rebound in subscriber growth in future quarters will require some combination of faster marketplace growth, viral content success, and lack of competitive impact – each of which is uncertain at this point," he said. However, the analyst added that he anticipates 3 million net additions in the third quarter as the streaming company benefits from Verizon's +play service and distances itself from its pandemic growth. Credit Suisse has a neutral rating and $350 price target on Netflix, which implies a near 83% upside. Netflix could also have another problem after releasing earnings. Wells Fargo's Chris Harvey said in a note Tuesday that many large-cap fundamental growth portfolio managers have dipped into Netflix amid the recent rebalancing of the stock in the Russell 1000 growth and its addition to the Russell 1000 value index. But a disappointing print could lead to an aggressive sell-off. "We view NFLX as a GARP-y secular grower, and a strong earnings report (and reaction) could cause some Value PMs to close the gap between their portfolio's NFLX weighting and the benchmark," Harvey said. — CNBC's Michael Bloom contributed reporting.