Netflix shares sink as Wall Street bails

Shares have plummeted more than 30% on Wednesday

Shares of Netflix are on track for their worst day in over a decade after at least nine Wall Street analysts downgraded the stock following the streaming behemoth's disappointing earnings results. As of the time of publication, the stock is down more than 36% on Wednesday.

Ticker Security Last Change Change %
NFLX NETFLIX INC. 185.88 +5.93 +3.30%

FOX Business surveyed what Wall Street is saying in the following roundup.  


Wedbush Securities: market saturation, competition, inflation among major headwinds

Wedbush Securities analyst Michael Pachter has maintained a neutral rating for Netflix and lowered the firm's price target for Netflix from $342 to $280. 

Pachter wrote in a note to clients that Netflix faces five major headwinds, including market saturation in the U.S. and Canada; competition for content and wallet share; inflation, and "the effects of a pull-forward to 2020 from shelter-in-place that are only now reversing." He added that the situation between Russia and Ukraine will continue to be a drain on revenues but noted that the impact on subscribers will be more modest. 

When it comes to password sharing, Pachter expects Netflix will likely change its plan to accommodate legitimate sharing. As for an ad-supported tier, Wedbush expects Netflix to continue to test the concept for "at least several quarters" before making a major change, but it emphasizes that both new and existing subscribers would be receptive to the offering.  

Stifel: Netflix ad-supported tier, monetization of shared accounts years away

Stifel analyst Scott Devine has downgraded Netflix from "buy" to "hold" and cut its price target from $460 to $300. 

Thought Stifel believes that some headwinds such as a weaker macro environment and inflation should "prove to be transitory," the firm argues that Netflix will still need to address more secular issues weighing on growth, such as heightened competition, potential maturity in core markets and the prevalence of password sharing. 

Though Devine acknowledges that ad-supported subscriptions and improved monetization of shared accounts could possibly reinvigorate growth, he notes that both offerings are in early stages of development and are unlikely to materialize in results until the second half of 2023 or 2024. 


Benchmark: Netflix recovery depends on better creative execution, enhanced international production

Benchmark analyst Matthew Harrigan, who has a "hold" rating on Netflix, told clients in a note on Wednesday that the firm does "not expect much of a rebound from Netflix’s ~90 point/26% aftermarket freefall." 

Benchmark maintains that a "still plausible recovery depends more on much better creative execution and enhanced international production and growth rather than initiatives aimed at addressing password sharing or launching AVOD alternatives."

Harrigan also expressed skepticism on Netflix's "add an extra member" strategy being a growth game changer, arguing it "likely cannibalizes full ride member growth." He estimates that a crackdown on password sharing would provide a less than 6% incremental revenue benefit. 

In addition, Benchmark does not believe that Netflix's scripted shows, especially when binged viewed, are "conducive to toleration of advertising." Harrigan also argues that Netflix's entry into gaming is unlikely to provide "anything more than an indiscernible reduction in monthly churn" despite its recent acquisitions of studios, including Boss Fight Entertainment. 


Piper Sandler: Consumers receptive to ad-supported Netflix offering 

Piper Sandler analyst Thomas Champion has downgraded Netflix from "overweight" to "neutral" and cut its price target from $562 to $293, adding that the firm struggles to see a return to a "preCOVID net add cadence." 

"Management tone was subdued and comments point to a host of issues impacting the go-forward sub trajectory, including macro, CTV adoption, password sharing and competition," Champion told clients. "Sub losses continue into 2Q and revenue growth will be lower, likely into '23. While password sharing is being addressed and a new ad-supported tier sounds viable, we substantially lowered sub adds forecasts for '22/'23."

A survey conducted by the firm suggests a positive response to an ad-supported offering, with 23% of respondents willing to use an ad-supported tier and 12% willing to unsubscribe and watch ad-supported. About 49% of respondents said they would be willing to keep paying for their subscription, compared to 17% who were unsure because they use someone else’s account. Just 10% of respondents noted using an account outside their household. 

Needham: Netflix winning streaming wars dependent on content spending, bundling

Needham analyst Laura Martin has upgraded Netflix from "underperform" to "hold". 

She argues that Netflix will not be a streaming wars winner unless it adds sports and news content, buys a deep film and TV library and enhances its bundling opportunities to lower churn. In addition, Martin said Netflix's single pricing tier is "much too expensive" compared to its competitors and that subscriber growth will not return unless it adds an ad-driven tier priced at $5 to $7 per month. 

Pivotal Research Group: AMZN largest competitive threat to NFLX

Pivotal analyst Jeffrey Wlodarczak has downgraded the stock from "buy" to "sell" and reduced its price target by nearly 60% from $550 to $235.

Wlodarczak believes that going after the 100 million households who share Netflix accounts is "a real opportunity to boost ARPU (and to lesser extent subscriber) growth in the medium term offset by the potential for a pushback from existing subscribers." 

Ticker Security Last Change Change %
AMZN AMAZON.COM INC. 113.50 +3.94 +3.60%

Meanwhile, Pivotal believes an ad-supported tier "cheapens the brand and the product vs. the current great consumer experience and introduces ad volatility to results."

Wlodarczak warned that Amazon represents "the largest competitive threat" to Netflix moving forward, while Disney+ is seen as "complementary" given its focus on children.


Barclays: Netflix should explore larger strategic partnerships

Barclays has maintained an "equal weight" rating on Netflix, but lowered its price target from $380 to $275.

"Overall, Netflix is now starting to show signs of maturity consistently, which raises bigger questions about actual streaming TAM as well as steady state streaming margins," Barclays analyst Ross Sandler wrote in a note to clients. "Also, we believe the company is starting to fall behind others on strategic growth initiatives as evident in the fact that it is one of the last services to move into ad supported streaming despite years of lead time and evidence of opportunity due to services such as Hulu. The company’s move to monetize password sharing also appears to be reactive due to slowdown in growth, rather than a proactive move." 

Barclays warns that Netflix's investments in gaming may potentially slow down as the company has to manage costs more tightly as subscriber growth slows. While the firm believes gaming and advertising can be significant revenue drivers, it predicts that they will not contribute to Netflix in a meaningful way until 2024. 

"Consequently, we believe Netflix may need to explore larger strategic partnerships more actively to accelerate its ramp in new growth areas," Sandler adds. 

Ticker Security Last Change Change %
DIS THE WALT DISNEY CO. 97.18 +1.04 +1.08%

In addition, the Barclays warns that Netflix's slowdown highlights similar challenges for other streaming competitors, especially Disney. 

"If Netflix is struggling to grow subs at an overall base of ~220mm, it's tough for us to see how Disney+ gets to its goal of 240mm subs at the mid-point of its growth guidance range by 2024," Sandler explains. "In an environment where Netflix is likely to add 5-10mm subs annually, Disney would need to add 44mm in order to get to its long-term sub growth guidance."