Bank Of America Moderates Netflix Bull Vs. Bear Debate After Q2 Print

Bank of America Merrill Lynch hosted a Netflix, Inc. NFLX bull versus bear debate with more than 30 investors Thursday that mostly focused on the company's second-quarter subscriber miss.

The Analyst

Nat Schindler maintained a Buy rating on Netflix with an unchanged $450 price target.

The Thesis

Netflix's second-quarter report was highlighted by the company adding 2.7 million global net new subscribers, which fell short of expectations of 5 million, Schindler said in a Sunday note. (See his track record here.)

Bulls argued that Netflix's miss was one-off due to seasonal patterns, and the company has a poor history of accurately modeling second quarter metrics.

On the other hand, bears argued that Netflix's subscriber miss implies the streaming video company is more dependent on releasing major hits than previously assumed.

Other bullish points raised included the following, the analyst said:

• Netflix's profit margins are improving at a faster-than-expected rate, and the company is on track to achieve breakeven cash flows.
• The company's opportunity in India is not priced into the stock.

Bears pointed out the following, Schindler said:

• Concerns of growing competition in the streaming video universe as competition continues to intensify.
• Netflix's stock multiple may need to be adjusted lower to account for the second-quarter miss.
• Concerns that Netflix may have hit a peak of 60 million U.S. subscribers, which is short of the 70-75 million figure bulls were hoping for.

"With margins improving, we should see EPS growing at 50% y/y for a while — if that is the case, there are better shorts out there," Schindler said. 

Price Action

Netflix shares were down 3.49% at $307.72 at the time of publication Monday. 

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Photo courtesy of Netflix.