Netflix (NFLX) Stock Plummets on Weak Guidance to Prompt Several Downgrades to Neutral

January 21, 2022 5:32 AM EST
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Price: $183.48 +3.55%

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Netflix (NASDAQ: NFLX) reported Q4 earnings that beat analyst estimates, however, shares of the streaming giant dropped 20% on weak guidance.

Netflix reported earnings per share (EPS) of $1.33, compared to $0.82 estimated by the Refinitiv survey. Revenue was in line with the analyst consensus of $7.71 billion and global paid net subscriber additions stood at 8.28 million, beating the expected 8.19 million.

On the guidance front, the global paid net subscriber additions for this quarter were reported at 2.5 million, lower than the 3.98 million recorded in Q1 2021, and far below the analyst consensus of 6.93 million for the first quarter.

Netflix said one of the reasons behind the current slowdown was increased competition from other streaming platforms.

Weak guidance prompted several Street analysts to downgrade shares to Neutral rating or equivalent.

Barclays analyst Kannan Venkateshwar downgraded to Equal Weight from Overweight and lowered the price target to $425.00 per share from the prior $675.00.

“The company’s Q1 net add guide is surprisingly low and points to the slowest Q1 ever despite Q1 performance being correlated with Q4 net adds outside of Covid periods and Q4 being relatively strong in absolute performance. Based on historical Q1 contribution to full-year growth, the company’s guidance in essence implies net adds in ‘22 coming in even lower than ‘21, which was impacted by Covid comps. In addition, the company expects no margin growth in ‘22, reversing the 300-400bp margin expansion trajectory over the last few years,” Venkateshwar said in a client note.

Morgan Stanley analyst Benjamin Swinburne downgraded to Equal Weight from Overweight and cut the price target to $450.00 per share from the prior $700.00.

“Our prior view assumed that as content investments rebounded post pandemic, net additions would as well. 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 in his report.

Netflix stock price hit the lowest point in pre-market trading since June 2020.

By Senad Karaahmetovic | [email protected]

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