- Netflix plunged 28% on Wednesday after its first-quarter earnings revealed a loss of subscribers.
- The streaming company also forecasted a further drop in subscribers in its second quarter.
- Here's how three Wall Street analysts reacted to the Netflix first-quarter earnings bomb.
Netflix stock plunged 28% on Wednesday after the streaming company announced mixed first-quarter earnings results that revealed its first loss of subscribers in a decade.
Late Tuesday, the company said it lost 200,000 subscribers on a net basis, which is a far cry from management's guidance of 2.5 million subscriber net adds. And Netflix expects the pain to continue into the second quarter, having forecasted a drop of 2 million subscribers.
"Our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds," Netflix said in its letter to shareholders.
The company said it plans to better monetize the estimated 100 million households that are sharing passwords to use the service, and that it will explore a lower-priced tier with advertisements to give more customers choice in how they subscribe and view Netflix content.
But those two potential growth levers are likely one to two years away, and Wall Street analysts hit the stock with a slew of downgrades on Wednesday.
Here's how three Wall Street analysts reacted to Netflix's first-quarter subscriber plunge.
JPMorgan: "A sea change quarter for Netflix."
"The company essentially conceded to every key point of the bear thesis... near-term visibility is limited, our 2022 net adds come down sharply from 16M to 8M, & there's not much to get excited about over the next few months beyond the new, much lower stock price."
JPMorgan downgraded the stock to neutral from overweight and lowered its price target to $300 from $605.
Goldman Sachs: "We see Netflix as a multi-year show me story."
"It is not additive to downgrade the shares at current levels as Netflix is now trading closer to a lower growth traditional media distribution/content business than a disruptive high growth tech company. To improve investor sentiment either via growth and/or sustained free cash flow generation, we see Netflix as a multi-year show me story with a catalyst more likely outside of the next 6-12 months."
Goldman Sachs reiterated its neutral rating and lowered its price target to $265 from $420.
Stifel: "All good growth stories eventually come to an end."
"While some headwinds highlighted by management (weaker macro, inflation) should prove to be transitory, the company will still need to address a number of more secular issues likely weighing on growth, including heightened competition, potential maturity in core markets, and the prevalence of password sharing. Netflix has several levers to possibly reinvigorate growth, including introducing an ad-supported subscription plan and improving monetization of shared accounts; however we note that both offerings are in their early stages of development and are unlikely to materialize in results until 2H:23/2024."
Stifel downgraded the stock to hold from buy and lowered its price target to $300 from $460.