Shares of Netflix (NFLX) dropped over 10% last week as lower-than-expected earnings and weak 3Q forecast failed to impress. While its revenues topped analysts’ expectations, earnings fell short.
The streaming giant got a significant boost from the pandemic-led stay-at-home measures. Netflix added a record 10.1 million paid subscribers in 2Q, beating its own forecast of 7.5 million. In the first half of the year, Netflix added 26 million paid subscribers, which is significantly above what it achieved last year.
However, Netflix expects to add 2.5 million subscribers in 3Q, which is well below the 6.8 million subscribers it added in the prior-year quarter. The sharp drop both on the sequential and year-over-year basis irked investors.
Netflix’s 3Q guidance shouldn’t surprise much. During its 1Q conference call, the company stated that the pull-forward volumes in H1:20 are likely to weigh on H2 performance and it expects low paid net additions in the latter half of the year.
Despite expectations of a deceleration, Netflix should continue to maintain a dominant position in the streaming space. On July 17, J.P. Morgan analyst Doug Anmuth stated that Netflix continues to be a “key beneficiary and driver of the ongoing disruption of linear TV.” He maintained a buy rating on the stock and increased the target price to $625 from $525.
Netflix stock has surged over 52% year-to-date, and analysts have a cautiously optimistic Moderate Buy stock consensus. In light of the recent share rally, the average analyst price target of $518.32 implies upside potential of modest 5% from current levels. (See Netflix’s stock analysis on TipRanks).
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