Stifel Still Likes Netflix's Long-Term Outlook, Upgrades Stock To Buy

Shares of Netflix, Inc. NFLX tumbled about 13 percent in Tuesday's pre-market session following the company's earnings report that showed a miss on the domestic and international net subscriber additions. Despite a notable miss on the subscriber front, Stifel turned bullish on the stock.

The Analyst

Stifel's Scott Devitt upgraded Netflix from Hold to Buy and maintained a $406 price target.

The Thesis

Netflix ended the second quarter with 670,000 more domestic subscribers and 4.47 million more international subscribers, both of which short of the 1.22 million and 4.47 million, respectively, Devitt said in a note. It's important to highlight that new content was "lighter on unexpected hits" compared to prior quarters. Looking forward to the rest of 2018, the library slate of new content, including the newest season of "Orange Is the New Black" and the second season of "Ozark," should give the company greater optionality.

Netflix management did guide its third-quarter total net subscriber adds to 5 million, Devitt said, of which 4.35 million are coming from international markets. As such, the company's near-term outlook is positive and investors may want to consider taking advantage of the near-term volatility on the subscriber miss to be buyers of the stock.

Bottom line, Netflix's stock after this selloff represents an attractive entry point for investors, especially for patient investors who can wait five to 10 years during which the subscriber base should double in size.

Price Action

Shares of Netflix were trading lower by 12.5 percent to $349.50 at time of publication.

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