Netflix Shares Slump About 9% as Paid Membership Growth Slows

The California-based global internet entertainment service company Netflix’s shares slumped about 9% in extended trading on Tuesday after the company flagged that growth in paid memberships slowed due to COVID-19 production delays.

However, the streaming video pioneer reported adjusted earnings per share of $3.75 per share in the first quarter, far exceeding analysts’ expectations of $2.97 per share. Revenue jumped 24% to $7.16 billion in the quarter ended on March 31, beating Wall Street consensus estimates of $7.13 billion.

Netflix said it ended Q1 with 208 million paid memberships, up 14% year over year, but below the guidance forecast of 210 million paid memberships. That was largely due to slower production during the ongoing COVID-19 pandemic.

The company forecasts paid net additions of 1 million in the second quarter, below the market expectations of 4.8 million.

Netflix shares slumped about 9% to $501.89 in extended trading on Tuesday.

Analyst Comments

“Bracing for a challenging 1H21 due to tough YoY compares, the results appear to be softer than expected. With 1Q21 done, Netflix expects 1H21 net additions of +5mm vs. our prior estimate of +9.5mm. This appears primarily a gross additions issue, as churn is down YoY and engagement up YoY. In other words, after 2020’s pull forward of growth, gross activations are down meaningfully in 1H21. This appears to be exacerbated by a 2H21-heavy content slate as a result of production delays tied to COVID-19,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“We lower our 2021E paid net adds to roughly 19mm (vs. prior 25mm), with an expectation for re-acceleration in 2022E as COVID-related comps and the content slate normalize. We continue to forecast roughly 20% EBIT margins in ’21E, with roughly +300bp of annual margin expansion thereafter. Our consolidated EBIT forecast comes down 2% in ’21E and down 3-4% in ’22E, driven by the lower subscriber outlook. Our $650 price target (vs. prior $700) is based on our DCF-driven valuation and implies ~9x our ’22E revenues. Refer to Exhibit 7 for additional details on changes to our estimates.”

Netflix Stock Price Forecast

Thirty-one analysts who offered stock ratings for Netflix in the last three months forecast the average price in 12 months of $618.41 with a high forecast of $750.00 and a low forecast of $340.00.

The average price target represents a 12.53% increase from the last price of $549.57. Of those 31 analysts, 22 rated “Buy”, five rated “Hold” while four rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $650 with a high of $850 under a bull scenario and $400 under the worst-case scenario. The firm gave an “Overweight” rating on the internet television network’s stock.

Several other analysts have also updated their stock outlook. Piper Sandler lowered the target price to $600 from $605. Evercore ISI slashed the price target to $655 from $665. Credit Suisse Group set a $586 target price on Netflix and gave a neutral rating.

Moreover, Canaccord Genuity upped their price objective to $670 from $630 and gave the company a buy rating. Benchmark reduced their price objective to $472 from $485 and set a sell rating.

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