These Netflix Analysts Aren't Confident Of A Turnaround Within The Next 18 Months

Netflix Inc NFLX reported a revenue miss and a loss of net paid adds for the first quarter. Reacting to the quarterly results, most analysts tempered their expectations for the streaming giant.

The Netflix Analysts: Rosenblatt Securities analyst Barton Crockett maintained a Neutral rating on Netflix shares and reduced the price target from $354 to $245.

Raymond James analyst Andrew Marok maintained a Market Perform rating.

KeyBanc Capital Markets analyst Justin Patterson maintained a Sector Weight rating.

Needham analyst Laura Martin upgraded Netflix shares from Underperform to Hold.

Cheap, Ad-based Services Gain Share, Rosenblatt Says: Netflix expects subscriber growth to be positive for the year and maintain its 19%-20% operating margin guidance for 2022, Crockett said. The company now expects operating margins to be flat, as opposed to its earlier expectations for an average annual margin expansion of 19%-20%.

As fixes, the company said it will clamp down on 100 million households with shared passwords globally and offer a cheaper version of the service with ads, the analyst noted. The former will ramp in 2023 and the latter in 2024.

Crockett doesn't see the trouble at Netflix seeping down to Roku Inc ROKU, as the streaming giant does not pay fees to Roku. Roku is levered to ad-based streaming, which is gaining share, the analyst said.

"The cheaper ad-based services are holding up while Netflix suffers," the analyst said.

Analysis: How Can Netflix Get Its Mojo Back?

Netflix Shares Appropriately Valued, Raymond James Says: Netflix attributed the disappointing first-quarter numbers and weak second-quarter guidance to the impact from exiting Russia, increasing penetration, competitive pressure and an uptick in churn following price increases in the U.S. and U.K., Marok said.

The company said revenues will continue to remain under pressure, the analyst noted.

The two avenues Netflix banks on for revenue re-acceleration, namely password sharing crackdown and ad-supported option, are only in the testing phase and implementation could take 18 to 24 months at the earliest, Marok said.

"Though the company expects a return to subscriber growth in the back half of the year from seasonal strength and a stronger content slate, the emphasis has clearly shifted to monetization in the near term as demand remains uneven," the analyst said.

Given the uncertainty around demand trends into 2022 and longer-term nature of revenue initiatives, Raymond James said Netflix shares are now appropriately valued.

KeyBanc Sees 3 Challenges: There are more friction points to paid net add growth, Patterson said. Fixing these will take at least 18 to 24 months, he added.

Additionally, the analyst expects muted operating margin expansion due to the reinvestment to drive growth.

Related Link:Why BofA Cut Netflix Target Price By 50%

Needham Positive On Ad-Supported Model: Martin attributed the upgrade of Netflix shares to the company's decision to introduce a low-priced advertising tier over the next 16 to 36 months.

The analyst, however, said she remains worried about the company's near term due to slowing year-over-year revenue growth, weak second-quarter guidance, rising subscriber churn, employee churn, lower opex guidance, U.S. saturation and inadequate entertainment focus.

NFLX Price Action: After Wednesday's more than 35% plunge, Netflix shares were down 3.52% at $218.22 Thursday afternoon, according to Benzinga Pro.