RBC -- $480
Bank of America -- $450
Morgan Stanley -- $450
Raymond James -- $470
Oppenheimer -- $425
Citi -- $420
UBS -- $420
Bernstein -- $451
Nomura -- $320
Wedbush -- $165
One of these things is not like the other.
The prices above are a sampling of Wall Street's reaction to the earnings report that Netflix (NFLX) delivered after the market close on Thursday. I suppose one could argue Nomura isn't the same as the others, but Wedbush's target around 50% lower than the current Netflix price really stands out.
Raymond James declared the bear thesis is losing credibility.
I guess you might have to say that if your price target is 40% above the current price, but I have an issue with this. It's not that I'm bearish per se, but if I'm crafting a bearish thesis it's around the ridiculous $1B+ of negative free cash flow and the current Netflix transformation.
Sure, the company "earned" $0.30 per share on $4.19 billion in revenue. The EPS number surpassed estimates by $0.06 while revenue came in just shy of expectations.
Net new subscribers of 8.84 million came in well shy of the expected 9.4 million and next quarter estimates of 8.9 million don't demonstrate a huge growth curve as the bulls argue. Additionally, first-quarter EPS guidance of $0.56 is well shy of $0.83 estimates and revenue will miss the mark.
Competition is my other concern. Analysts love to talk how far ahead Netflix is in terms of competition. Were they first to market? Absolutely, but whether that loyalty will hold forever is the better question.
The Disney (DIS) /Fox (FOXA) combo offering will present challenges. While Netflix hasn't been net losing content per se, it is losing existing content. Now, more than ever, the company relies on producing original content.
I'll admit Netflix has done a fantastic job of producing original content. Even when reviews are varied, like with Bird Box, the company was able to create a huge buzz around the movie that was the baby between the movies The Happening and A Quiet Place that no one wished would happen. That's a strength currently underestimated by the bears.
I would craft my argument around that single movie if I had to make one. Sure, they've had hits with Stranger Things and House of Cards, among others, but when you can create a viral sensation from a mediocre movie, that's power.
The impact of raising subscription prices on net subscribers adds over the next six months is a huge unknown. The current school of thought is the price hike is bullish for the shares and should have little impact on subscriber retention and growth. Until we see differently, I'd have to agree, but should price elasticity not exist because of competitive new offerings or simple a tighter economy, Netflix bulls will be living their own Bird Box nightmare.
I find it difficult to be a huge bull based on Thursday's results and the company's guidance. The huge red number around that free cash flow issue screams additional dilution in 2019. I'm interested in the $260-280 range, but with the stock near $350 I'll keep my blindfold on.
-- This commentary was originally published Jan. 18 on Real Money.
