NFLX Santa Rally? JPMorgan Sees Happier Ending In Q4
By Teresa Rivas
blogs.barrons.com
It’s been a painful plot twist for Netflix ( NFLX), which lost nearly 40% of its value in a little over a week, after introducing its new business plan to divide and rebrand its DVD and online streaming services.
Today, J.P. Morgan analyst Doug Anmuth remained cautiously optimistic about the stock, maintaining his Outperform rating, but slashing his target price by $40, to $205 (still a far cry from the stock’s recent $130) and lowering his earning estimates for the rest of the year below consensus.
Anmuth said the call was based on his estimates for U.S. hybrid subscriptions which he revised downward to a total of 23.7 million for the (current) third quarter, 24.1 million for the fourth quarter, and 31.6 million for 2012. Still, he did raise his estimates for international subscribers, to nearly 5 million by the end of 2012.
Indeed, he still sees potential future growth to sustain an Outperform rating, despite the current difficulties. Anmuth wrote that he expects the stock to remain range-bound near term, given “negative news flow from potential competitor announcements (Dish Network ( DISH), Amazon ( AMZN), Hulu) and continued disruption from headlines regarding sub churn.” However, he is more confident about the fourth quarter, which he thinks could bring about a more positive sentiment “as Netflix signs more content deals and announces new international launches, and we expect churn to normalize in 2012.”
For patient investors, he sees a brighter future: “We think that Netflix can return to solid subscriber and EPS growth over time as: 1) the streaming only service represented ~75% of gross adds in 2Q and we expect this number to increase; 2) the streaming only product and price remain unchanged since the streaming/DVD split was announced; 3) we continue to believe the 3Q reduction in subscriber guidance was due to churn rather than weakness in gross adds as 80% of the miss was in DVD only. Over time we expect Netflix to become more profitable as Qwikster is run more for profit than growth while streaming subscriber growth continues.”
Netflix shares were up 1.3% to $130.24 in recent trading. |
