Bernstein Says Netflix Will Continue to Fall

netflix

The analyst says Netflix stock stands to drop another 20%…

Netflix stock fell by as much as 2.8% on Thursday shortly after an analyst at Bernstein stated that the company’s shares could fall an additional 20% before bottoming out.

Netflix shares are down by more than 20% since its last earnings report in July. The report revealed disappointing numbers and the company reported a loss in U.S. subscribers for the first time in nearly a decade. Looming competition from new streaming services also contributes to the stock decline.

Bernstein analyst Todd Juenger wrote that “[Netflix] has gone through several transformations in the last decade.” In short, it’s difficult to predict Netflix’s future based on historical analysis.

But Bernstein did calculate that Netflix’s theoretical floor is $230 per share, about 20% below the current share price.

Netflix Expected to Rally

Though Bernstein expects Netflix to continue to fall, it reaffirmed its ‘outperform’ rating for Netflix. Bernstein set the price target for Netflix stock at $450.

Juenger wrote, “In the nearer term, at a minimum, we would suggest a strong 2H Netflix business performance should at least return the stock back to where it traded before the Q2 miss.”

Most investors are concerned about Netflix’s subscriber growth, pricing, and content library. Bernstein, however, noted that pricing is “the only one that causes us any concern.” That may indicate that customer loyalty, international growth, and original content can offset the other concerns.

Poor Q2 Earnings

Netflix’s recent slump began when it missed analyst expectations with its Q2 earnings report. Netflix stock dropped as much as 10% the day of the press release.

The company more or less met expectations on earnings and revenue … But the company’s subscriber count was a major disappointment to investors.

In its second quarter, Netflix lost 126,000 domestic subscribers. Compare that to an expected gain of 352,000. The company also reported adding 2.83 million international subscribers compared to an expected 4.81 million.

Netflix blamed the poor numbers on its content slate. But the company expects a better Q3 with strong titles like “Stranger Things,” “Orange Is the New Black,” and “The Crown.”

New Competitors

Netflix’s second-quarter earnings sparked concerns … And those concerns take a deeper hold as several companies announce plans to launch streaming services in the coming months.

Disney+ is set to debut in November and will be bundled with Hulu, another major Netflix competitor. Not only is Disney+ a threat to Netflix’s subscriber count, but it could also weaken Netflix’s library as Disney pulls its content from the streaming service.

Apple TV+ is also expected to launch in 2019. While the company doesn’t pose a threat to Netflix’s content library, it reaffirms concerns over Netflix pricing. Apple TV+ will only cost $4.99 per month.

Investors are concerned that new streaming services like these, and NBCUniversal’s Peacock, could eat into Netflix’s already diminishing paid subscriptions.

Bernstein does not share these concerns, however. Juenger wrote, “Consistent with our belief that most of the supposed competitive threats are not really threats … we would assign a higher probability to the upside case than downside case, which skews the risk/reward meaningfully to the upside.”

Though the company has been sliding the past few months, Netflix shares are currently up 7% year to date.

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