Stock Analysis & Ideas

Netflix Stock: Analyst Says Q2 is Good Enough to Warrant a Buy

Story Highlights

Netflix reported a lower-than-expected subscriber loss in the second quarter. A Stifel analyst sees Q2 results and its valuation as a trigger to buy NFLX stock.

Netflix (NASDAQ: NFLX) delivered mixed Q2 financial numbers. However, what stood out was a lower-than-expected subscriber loss. This led Stifel analyst Scott Devitt to upgrade NFLX stock to Buy. Devitt has a price target of $250 on NFLX stock, implying 15.5% upside potential.

Devitt Considers NFLX’s Valuation to be Compelling 

Netflix lost 1 million subscribers in Q2 compared to an expected decline of 2 million subscribers. Meanwhile, it expects to add 1 million subscribers in Q3, which is lower than the consensus estimate of 1.7 million. In response to this, Devitt cut his estimates to reflect the lower-than-expected subscriber additions in Q3. 

However, he added, “the prospect of a prolonged period of subscriber losses is becoming increasingly unlikely,” for Netflix.

The analyst advises investors to shift focus on the “viability of Netflix’s growth initiatives.” This includes NFLX’s several measures like “monetizing password sharing and the introduction of ad-supported tiers, both of which will be introduced next year.”

It’s worth mentioning that Netflix stock closed 7.4% higher following Q2 results. However, NFLX stock is still down about 69% from its 52-week high. Given the decline, NFLX stock’s valuation appears attractive to Devitt. 

The analyst stated, “With shares trading after hours for 22.6x 2022E EPS, we believe valuation is compelling for a dominant business with considerable optionality ahead.”

Bottom Line

The lower-than-expected subscriber losses in Q2 should bring some respite to NFLX stock. However, the uncertain future trajectory and the growing competition continue to play spoilsport and keep most analysts sidelined.

NFLX stock sports a Hold rating consensus based on seven Buy, 19 Hold, and six Sell recommendations. Meanwhile, the average Netflix price target of $229.30 implies 5.9% upside potential. Furthermore, NFLX sports a Neutral Smart Score of 7 out of 10

Disclosure 

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