Netflix Inc. (NFLX) stock is slipping again as analysts question how the long it may take for the company to tackle its towering debt.
Shares of the Los Gatos, California-based entertainment giant were down about 3% before Wednesday's opening bell as analysts trimmed their Netflix price targets amid the company's increasingly red long-term balance sheet and the effect of its debt on cash flow. The pre-market decline adds to an approximately 33% reduction in share value over the back half of 2018.
Total debt now stands at more than $10 billion for the BB-rated company, a level that has grown as Netflix has transition away from reliance on larger media entities for content. About $2 billion in high-yield debt was added to the debt pile in late October to further its transition efforts, adding to concern among analysts.
SunTrust Robinson Humphrey analyst Matthew Thornton noted that the debt load, along with the expectation of softer fourth-quarter subscriber numbers, is motivating his price target cut of more than 13%.
"Meaningful fourth-quarter upside looks unlikely. We're updating our model with recent debt raise; and lowering our price target to $355 (higher rates, lower comp multiples) based on discounted cash flow," Thornton wrote.
Despite trimming his price target from $410 to $355, Thornton maintained his "Buy" rating considering the remaining upside for the streaming service ahead of a number of strong 2019 releases and the strength of surprise hits such as "Bird Box" at the end of 2018.
"Maintain Buy, despite near-term subs adds tracking soft (we're watching for December data), with the content slate set to strengthen into mid-year including 'Stranger Things,'" Thornton wrote. "We believe the company still has optionality around pricing (lower and higher, depending on market), distribution and partnerships, box office, merchandising, product placement, and licensing out content."
Less optimistically, Evercore ISI analyst Anthony DiClemente trimmed his price target from $375 to $325 on Friday while maintaining a "Hold" rating as the cost of Netflix's debt increases.
Half of analysts publishing research in December reined in price targets, according to FactSet.
In With the Neumann, Out With the Old
The transition follows longtime CFO David Wells' announcement of his planned departure in August after 14 years with the company after guiding Netflix's move to an original content business model.
"We would view the hire favorably, as Neumann has public CFO experience at a large global consumer tech/entertainment company, with leverage on the balance sheet and subscription revenue, and is fairly well-known and liked by investors," Thornton wrote on Wednesday morning.
Still, the Reuters report did coincide with a regulatory disclosure from Activision Blizzard that stated Neumann was being placed on administrative leave and considered for termination from his position, one he held for just 18 months.
"The Company intends to terminate Mr. Neumann's employment for cause unrelated to the Company's financial reporting or disclosure controls and procedures," the filing reads. "Mr. Neumann has been placed on a paid leave of absence from the Company pending an opportunity for him to demonstrate why cause does not exist to terminate his employment or why termination of his employment is not otherwise justified."
Prior to his short tenure at Activision Blizzard, Neumann enjoyed a long career at Walt Disney Co. (DIS) that was preceded by years of experience in private equity.