Wall Street Reacts to Netflix Numbers as Shares Slide

Wall Street is having a mixed reaction to Netflix’s (NFLX) second-quarter earnings report released late Monday, which has shares down 13% in pre-market trading.

Netflix, which is up 108% this year, reported new 5.15 million subscribers, whereas it had projected 6.2 million and Wall Street anticipated 6.34 million, according to estimates.

Deutsche Bank downgraded Netflix to Hold from Buy, saying that the subscriber number miss was not cause for alarm, but was a reason to reconsider the stock’s soaring valuation. The firm lowered its price target to $350 per share from $360.

“The slowdown in growth is not thesis-changing, but does require a re-evaluation of value and consideration of the stock’s year to date appreciation from $200 per share,” Deutsche Bank analysts said in a note. “Our long-term outlook for Netflix’s business has not changed all that much.”

Deutsche noted that it still believed Netflix stock “can double by 2025 to $700 per share,” but analysts said they “just don’t see much upside over the next 12 months at this valuation level.” (See also: Tech Stocks Set for Rocky Open.)

Other firms are remaining bullish on Netflix. Bank of America Merrill Lynch said it believes the company will return to beating estimates soon.

“While 2Q results may take some of the wind out of Netflix’s sails near-term, we do not think 2Q is a sign growth is slowing overall and we think Netflix still has large runway for growth left,” Bank of America Merrill Lynch analyst Nat Schindler said in a note. “Netflix never misses twice … Historically, following a net adds miss, Netflix tends to set guidance cautiously and deliver large beats in the following quarters.”

Bank of American reiterated a Buy rating, while dropping its price target to $410 per share from $460.

J.P. Morgan reiterated an Overweight rating, while increasing its price target to $415 per share from $385, saying it does not believe the latest subscriber numbers “reflect a fundamental change in the Netflix story.”

Netflix Second-Quarter Results

Netflix’s miss on subscriber numbers was the first time in five quarters that the streaming service fell short of its projections. (See also: Top 3 Netflix Shareholders.)

Netflix reported 674,000 domestic subscriber additions, lower than the 1.23 million expected. Internationally, the company added 4.47 million subscribers, versus the 5.11 expected. For the third quarter, Netflix said it expects to add 5 million subscribers, lower than the 6 million the Street expected.

Second-quarter revenue was $3.91 billion, lower than the $3.94 billion Street estimate.

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