Netflix Inc NFLX reported a loss in revenue and a loss in net paid adds for the first quarter. In response to the quarterly results, most analysts lowered their expectations for the streaming giant.
The Netflix Analysts: Rosenblatt Securities Analyst Barton Crockett kept a neutral rating on Netflix stock and reduced its price target to $245 from $354.
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 has upgraded Netflix stock to Hold from Underperform.
Cheap, ad-based services are gaining share, says Rosenblatt: Netflix expects positive subscriber growth for the year and maintains its 19% to 20% operating margin guidance for 2022, Crockett said. The company now expects flat operating margins, in contrast to its previous expectations of a 19% to 20% compound annual margin increase.
As a solution, the company said it would crack down on 100 million households with shared passwords worldwide and offer a cheaper version of the service with ads, the analyst noted. The former will be ramped up in 2023, the latter in 2024.
Crockett doesn’t see the problems leaking out to Netflix Roku Inc ROKU as the streaming giant pays no fees to Roku. Roku is transitioning to ad-based streaming, which is gaining market share, the analyst said.
“The cheaper ad-based services are holding up while Netflix is suffering,” the analyst said.
Analysis: How Can Netflix Get Its Mojo Back?
Reasonably Valued Netflix Stock Says Raymond James: Netflix attributed the disappointing first-quarter figures and weak second-quarter guidance to the impact of its exit from Russia, rising penetration, competitive pressures and an increase in churn following price hikes in the US and UK, Marok said.
The company said earnings would remain under pressure, the analyst noted.
The two avenues Netflix is using to re-accelerate revenue, the crackdown on password sharing and the ad-supported option, are still in the testing phase and implementation could take 18 to 24 months at the earliest, Marok said.
“While the company expects a return to subscriber growth in the second half of the year due to seasonal strength and a stronger content set, the near-term focus has clearly shifted to monetization as demand remains uneven,” the analyst said.
Raymond James says Netflix shares are now reasonably valued given the uncertainty surrounding demand trends through 2022 and the longer-term nature of revenue initiatives.
KeyBanc sees 3 challenges: There’s more friction to paid net incremental growth, Patterson said. Fixing these will take at least 18 to 24 months, he added.
Additionally, the analyst expects a modest increase in operating margin due to reinvestment to drive growth.
Related Link: Why BofA Dropped Netflix Target Price by 50%
Needham positive on ad-supported model: Martin attributed Netflix’s stock upgrade to the company’s decision to introduce a budget tier of advertising over the next 16 to 36 months.
However, the analyst said she remains concerned about the company’s near-term future due to slowing year-on-year revenue growth, weak second-quarter guidance, rising subscriber churn, employee churn, lower opex forecast, the US -Saturation and insufficient focus on entertainment.
NFLX Price Action: After plummeting more than 35% on Wednesday, Netflix shares fell 3.52% to $218.22 as of Thursday afternoon, according to the Benzinga Pro.