KeyBanc Cuts Netflix Estimates After Disappointing Q2, Maintains Bullish Stance

Netflix, Inc. NFLX reported both domestic and international subscriber misses in its second-quarter print Monday, but KeyBanc Capital Markets continues to recommend the stock. 

The Analyst

KeyBanc's Andy Hargreaves maintained an Overweight rating on Netflix's stock with a price target lowered from $385 to $375.

The Thesis

Netflix's Q2 report was a disappointment for four reasons, Hargreaves said in a Monday note. (See the analyst's track record here.)

• U.S. net subscriber additions of 0.67 million fell short of Hargreaves' expectation of 1.2 million.
• U.S. contribution margins of 39.1 percent fell short of the 39.6 percent expected.
• International net subscriber additions of 4.47 million were also short of the 5 million expected.
• Investment efficiency worsened in the quarter and needs to stabilize or improve to support the stock at higher levels than today. 

Netflix is now expected to add 25.5 million global net subscribers in 2018 against prior estimates of 28.2 million, the analyst said. KeyBanc's 2019 global net subscriber add estimate for Netflix was lowered from 26.8 million to 25.4 million. Coupled with shifts in foreign exchange, KeyBanc's 2018 revenue expectations were lowered from $16.1 billion to $15.8 billion while 2019's estimates were moved lower from $20.1 billion to $19.2 billion.

Despite the estimate cut, the analyst said Netflix's long-term subscriber and pricing expectations are "virtually unchanged," leaving KeyBanc's bullish thesis intact. 

Price Action

Netflix shares were plunging 11.6 percent to $353.99 off the open Tuesday.

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Photo courtesy of Netflix.