Netflix falls on slowing subscriber growth. What Cramer and other market analysts would do now
Netflix’s story is far from over, according to a smattering of stock market analysts.
Shares of the streaming giant fell nearly 7.5% on Wednesday following the company’s first-quarter earnings report. Though Netflix beat earnings and revenue estimates, a large drop in subscribers put a crimp on the stock.
However, market watchers including CNBC’s Jim Cramer largely say this isn’t the end-all quarter for Netflix.
Here are some of their takes:
Tom Rogers, a longtime media mogul who is now executive chairman of Engine Media, said Netflix still has the upper hand in its industry:
“I don’t particularly buy the notion that their programming was thin. They’ve done much better in terms of having new programming out there during the pandemic than anybody else. They had some very big shows out there at that point — ‘Bridgerton,’ ‘Lupin.’ But look, it was a surprise that they slowed a little bit. Does it derail the Netflix thesis? No. Remember, two years ago, they missed by over 2 million [subscribers] in the quarter, the stock went down by 10%, and [subscribers] soared from there. Valuations soared from there. Even last year, they had a quarter of only 2 million [subscribers]. This quarter they hit 4 million [subscribers]. So, look, [subscribers] are going to be lumpy. It does suggest it’s not so easy to build subscribers in the streaming world. I think others are going to struggle some with sluggishness even more than Netflix does. But if I had to say would I prefer Netflix’s hand to anybody else’s in the streaming world? Absolutely.”
Rich Greenfield, partner and media and technology analyst at LightShed Partners, advised against getting caught up in the Netflix negativity:
“This quarter was disappointing. There’s no way around … the guidance even for Q2 being more disappointing than the Q1 results. That said, I want to remind everyone that’s watching today: This has happened before, many times, actually. The reality is forecasting Netflix on a quarterly basis has become increasingly more challenging as the subscriber base has grown. The size of the beats and the size of the misses have grown pretty notably. I mean, if you go back, I remember being on ‘Squawk’ in the middle of 2019 after that Q2 print. We tend to all have a habit of overextrapolating any one quarter and trying to change the entire future of where the world is going. I think if you take a step back, though … the reality is what’s going on? Everyone is shifting to streaming. You’ve seen, obviously, [Comcast] jump in with Peacock. You’ve seen Discovery. You’ve seen Paramount+, part of Viacom. Everyone is moving towards streaming. All of the best content is moving towards streaming. Cord cutting is accelerating, and Verizon just reported. … They are 7% lower in video subscribers year over year. That’s a pretty crazy rate of decline in video subscribers. Your parent company Comcast is talking about losing upwards of 2 million video subscribers in 2020. So, the underlying trend of the shift from linear to streaming is just beginning, and remember, on a global basis, just keep this one stat in mind: In all of Asia-Pacific, Netflix has 27 million subscribers. It’s a market with hundreds of millions of potential subscribers over time. So, again, it’s very easy to get caught up in the negativity and being upset about Q1 numbers. The reality is there’s a long way to go and we’re still pretty early in the transition to streaming television.”
Cramer, host of CNBC’s “Mad Money,” said he could see the $508 stock falling to around $490 a share:
“I do believe they de-risked it. I do believe that they created … an outlook that basically can be beaten and is not necessarily the correct one. These guys have not been that great at forecasting. I think the most important line in the whole call was [Netflix CEO] Reed [Hastings] saying, listen, there’s 800 million TVs at the top other than China, so, that’s a lot of room to grow. I agree with that and I think that they were constrained by what they were showing. I don’t know, I mean, I think that this is an opportunity. I really do. I mean, maybe they can take it down to 490, but … I do very strongly believe that these guys are so confident and it’s not made up. Five billion dollar buyback. They’re fixing the balance sheet. There’s so much that’s good that I still think they’re having a great time. One day, there’ll be a conference call where they literally say, ‘OK, maybe things have run out.’ That’s not this one. I mean, this one was just basically pull through and don’t worry about it, and I agree with them. I think that this is a very good story.”
Will Power, senior research analyst at Baird, saw the drop as a chance to buy:
“We think there’s still a lot of runway ahead. And look, you’ve got to keep in mind this was a business with 200 million-plus subscribers, and so, whether you add 4 million or 6 million in a given quarter really doesn’t move the needle all that much. And I think a couple areas where we take a lot of comfort is the fact that engagement, according to the company, is still up year over year and that speaks to the long-term opportunity and the pricing power of the model. And churn remains fairly low, and lower than I think folks would’ve expected probably coming out of the pandemic. And so, as we look at the long-term opportunities, the penetration, the upside, we do like this as a buying opportunity.”
Heather Moosnick, CEO of Moosnick Media Consulting Group and a former Hulu executive, had her eye on the competition in Hollywood:
“In many ways, this Q1 story is a story of major Hollywood studios winning the battle. It remains to be seen if they’re going to win the war. Now, I agree that there’s a huge amount of headroom still for Netflix and the other streamers as well. With 200 million subscribers worldwide, they’re really going after the linear TV space. So, there are nearly 800 million TV subscribers worldwide outside of China and that leaves a lot of headroom still for that. But in Q1, we’re seeing some really interesting trends happening with the Hollywood studios launching their services, Disney+ reaching over 100 million [subscribers], and over 95% of the new subscribers in the U.S. to video streaming services were not Netflix in Q1. So, that speaks to the rise of these Hollywood direct-to-consumer services.”
Mark Mahaney, senior managing director and head of internet research at Evercore ISI, also suggested buying the dip:
“Every time you go through a Netflix earnings, you should ask yourself: Are you more or are you less confident on [subscriber] growth, margin expansion and RPU, the revenue they can get per user? And I thought the big question mark really was the [subscribers] that came out of last quarter. They showed record-high margins. … There was RPU growth despite the fact that they’re mid shifting towards lower-paying markets or economies. So, you’ve got two out of three things right, and our view on those [subscriber] numbers is you are going to have pull-forwards. It is impacted by the content slate. The stronger the content slate, the better the [subscriber] numbers. The weaker the content slate, the softer the [subscriber] numbers. But long term, this market, the entire entertainment market, is moving towards streaming and it’s moving towards a streaming bundle and Netflix is almost certainly going to be part of that. So, if I’m going to be soft in some place, I think they can make up for it later on with [subscribers]. That’s why we like this as an entry point. This isn’t the back-up-the-truck price, but it’s a back-up-the-minivan.”
Disclosure: Peacock is the streaming service of NBCUniversal, parent company of CNBC. Comcast is the parent company of NBCUniversal.
