Netflix (NFLX) Beats Estimates but Shares Slip on Conservative 4Q Net Adds Outlook, Analysts Mostly Positive and Raise Price Targets; Deutsche Bank Downgrades to Hold

October 20, 2021 6:35 AM EDT
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Price: $617.77 --0%

Rating Summary:
    43 Buy, 17 Hold, 6 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 4 | Down: 4 | New: 52
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Shares of Netflix (NASDAQ: NFLX) are down over 2.5% in pre-open Wednesday despite the company reporting better-than-expected Q3 results.

The company reported Q3 EPS of $3.19 per share to top the $2.56 consensus. Revenue came in at $7.48 billion, in line with the consensus of $7.48 billion. NFLX added 4.38 million net subscribers, which is again higher than the $3.5 million expected.

“After a lighter-than-normal content slate in Q1 and Q2 due to COVID-related production delays in 2020, we are seeing the positive effects of a stronger slate in the second half of the year... We’re very excited to finish the year with what we expect to be our strongest Q4 content offering yet, which shows up as bigger content expense and lower operating margins sequentially,” the company said in a press release.

On the 4Q guidance front, Netflix is calling for $7.7 billion and EPS of $0.80, versus the consensus of $7.68 billion and $1.10. Net adds are expected at 8.5 million, slightly higher than the consensus of 8.33 million.

The blockbuster TV Show Squid Games was watched by 142 million member households globally in its first four weeks.

Deutsche Bank analyst Bryan Kraft downgraded Netflix from Buy to Hold with a price target of $590.00.

“While, on the one hand, we share the market's enthusiasm toward Netflix's very strong 4Q content slate and the optionality it brings to 4Q net adds; on the other hand, we think a 4Q subscriber beat is already more than priced into the stock. We estimate Netflix is currently trading at 8.8x 2022E revenue, as compared with 8.1x implied by our PT, the latter of which is more in line with the company's historical trading range. And we'd add that revenue growth will likely continue to decelerate in 2022 (we estimate 15% revenue growth in 2022, vs 19% in 2021)," the analyst said in a client note.

"We believe it is difficult to justify Netflix's recent multiple expansion when revenue growth is decelerating. At some point, we believe Netflix will begin to trade on profit metrics (earnings, EBITDA, FCF). Looking at Netflix through an earnings lens; if we capitalize our 2026E Adj. EPS at a healthy 25x and discount it back to 2022, it implies a $600 stock price (very close to our $590 PT),” he added.

Elsewhere, Street analysts are mostly bullish on NFLX post 3Q earnings with at least 8 of them raising their price targets on the NFLX stock.

BofA analyst Nat Schindler reiterated a Buy rating and raised the price target to $750.00 per share from the prior $680.00.

“Recent successful content releases increased our confidence in Netflix’s return to strong growth despite tough comps near term. We continue to see a long runway for Netflix to increase its market share from linear TV, and we believe that it is in a strong position to continue raising prices as its engagement continues to increase. We reiterate our Buy rating and we increase our PO to $750 from $680 based on our updated peak penetration model,” Schindler wrote in a note.

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