The Analysts Lower Netflix Targets, But …
Netflix NASDAQ: NFLX developed a disturbing trend of price target reductions ahead of the Q1 earnings report but investors shouldn’t read too much into it. While 7 of the 37 analysts covering the stock came out with commentary in the two weeks before the report, and while 6 of those lowered their price target, the Marketbeat.com consensus price is still more than 60% above the current price action. What’s more, the round of newly lowered targets is in line with the consensus if in a very broad range so really nothing to be worried about. The key takeaway is the analysts’ community views the stock as a firm Hold verging on Buy and there should be considerable upside for investors now the stock has corrected from its pandemically inspired highs.
Near-Term Headwinds Cloud Netflix Outlook
The biggest concern among the analysts is near-term headwinds that may show up in the form of subscriber growth. The most menacing is the exclusion of Russia from the results which could impact total subscribers by as many as 2 million paid users. There is also concern that rising inflation could spur higher than anticipated churn, especially in vulnerable markets such as EMEA.
The app download data is cited by most analysts although the take on that is mixed. In some circles, the analysts see the company outperforming this quarter simply based on the app downloads while others think growth will be greatly subdued. The takeaway is the company is no longer growing at the pre-COVID or COVID-induced rates and the outlook is dimming. This fact is weighing on share prices but may be setting the stock up for a rebound. Better than expected results, particularly in the guidance, would be more than enough to get this market moving again.
In regard to the long term, the analysts are still bullish on the company although revenue growth is expected to continue slowing. The move into gaming may help boost both near and long-term growth but that impact will be negligible in the bigger picture. The key takeaway here is that margins are expected to expand and drive bottom-line growth at a higher rate than revenue. If the guidance points in that direction we see the stock rebounding sharply in the wake of the Q1 release.
The Institutions Put A Bottom In Netflix
Price action in Netflix corrected strongly in the first quarter of the year but the institutions put a bottom in by the end of the period. The institutions bought a net $10.74 billion worth of the stock over the past year, about $3.2 billion of that in the Q1 period, which is worth about 7% of the market cap and brings their total holdings up 81.5%. This activity helped the stock bottom at the $330 level which is now the key level to watch. If the institutions don’t like what they see or hear in the Q1 material they may start shedding their holdings and that will put tremendous pressure on share prices.
The Technical Outlook: Netflix Is At A Bottom
Netflix is at a bottom that may become “the bottom” for this correction. Assuming the Q1 results are better than the doom and gloom expected by the analysts, price action should begin to move higher immediately and may surge higher if the results are significantly better. In this scenario, we see shares of Netflix moving above the $385 level fairly quickly and then making a run at the $440 level. If not, then this stock may remain range-bound at this level or even move lower.
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