Netflix Chills: Analysts React To Q4 Earnings Sell-Off, Which One Called 'Thesis-Shaking Results'

Netflix Inc NFLX shares plummeted 20% on Friday after the company reported fourth-quarter earnings on Thursday afternoon and said streaming competition may impact its future growth.

Netflix reported fourth-quarter adjusted EPS of $1.33, beating consensus analyst estimates of 82 cents. Fourth-quarter revenue of $7.71 billion was in-line with analyst expectations. Revenue was up 16% from a year ago.

Netflix also reported 8.28 million global paid net subscriber additions, beating Wall Street expectations of 8.19 million. However, the company's first-quarter guidance of 2.5 million subscribers adds fell well short of analyst estimates of 6.93 million.

Netflix also explicitly commented on its rising competition in the streaming space in its earnings report.

“While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched," Netflix said.

The report comes after Netflix said it is raising prices for its standard plan in the U.S. from $13.99 per month to $15.49.

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Demand Uncertainty: Bank of America analyst Nat Schindler said Netflix reported "thesis-shaking results" but the dramatic Friday sell-off is likely an overreaction.

"We believe the unexpectedly low 1Q paid net adds guidance does not necessarily reflect a drastic growth slowdown but rather a deterioration of management’s ability to predict," Schindler wrote.

Raymond James analyst Andrew Marok said Netflix shares will likely be range-bound until investors get more clarity on future demand.

"We believe the 1Q22 guide takes a return to mid-to-high 20s million annual net adds off the table for 2022, and calls into question what the 'new normal' is for post-pandemic net adds," Marok wrote.

KeyBanc analyst Justin Patterson said it's difficult to determine the appropriate valuation for a decelerating subscription business.

"NFLX now screens as a low-double-digit grower with a <20% EPS CAGR through 2023E, suggesting the prior trough multiple of ~5.2x EV/S may no longer be valid," Patterson wrote.

Difficult Path Forward: Morgan Stanley analyst Benjamin Swinburne said things will only get tougher from here for Netflix.

"We now assume a base case of continued content spending growth but a more muted net adds outlook, lowering our earnings outlook materially," Swinburne wrote.

Needham analyst Laura Martin said Netflix needs to consider adding an add-driven subscription tier.

"We believe NFLX's TAM shrinks every time it raises prices and becomes out of reach to additional consumers," Martin wrote.

Ratings And Price Targets:

• Bank of America has a Buy rating and a $605 target.
• Morgan Stanley has an Equal Weight rating and a $450 target.
• Raymond James has a Market Perform rating.
• Needham has an Underperform rating.
• KeyBanc has a Sector Weight rating.

Photo: Souvik Banerjee from Pixabay