Netflix Shares Dip On Subscriber Slowdown, But Wall Street Bulls Still Buy The Story

Netflix shares slipped 6% in early trading today after the company reported a slowdown in subscriber growth and results that fell short of expectations.

At about $492, the stock fell below the $500 mark for the first time since September 30. After the close of trading Tuesday, the company reported adding 2.2 million global subscribers, which was below its own forecast. Earnings per share of $1.74 also missed the company’s guidance. The consensus for both metrics among Wall Street analysts was higher, with some expecting more than 5 million new customers.

Despite the miss, several analysts reaffirmed their positive rating on the stock and some even bumped up their 12-month price targets.

Benjamin Swinburne of Morgan Stanley has an “overweight” on the shares and raised his price target to $640 from $630, primarily due to the company’s achievement of positive cash flow after years in negative territory. “COVID has impacted Netflix’s results in two primary ways this year — more revenue and less spending,” he wrote in a note to clients, saying recent results have been “reinforcing our conviction in the long-term free cash flow opportunity in this business.”

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CFO Spencer Neumann said during the company’s earnings interview Tuesday that the company expects to report positive cash flow of about $2 billion for the full year in 2020 and an operating margin of 19%. In 2021, cash flow could dip into the red as production ramps back up, but Neumann expressed confidence in the company’s ability to retain ample cash. If so, that trajectory would rebut a key criticism from bears that Netflix was on a path to eventually spend its way into oblivion.

Todd Juenger of Bernstein Research hiked his 12-month price target to $591 from $573. He sees the company as well-positioned to continue thriving as COVID-19 lingers well into 2021. “We believe the pandemic impact is more likely to last longer than expected, rather than shorter,” he wrote in a note to clients. “This would simultaneously increase consumer demand for streaming video (stay-at-home) and decrease available content on competing services (production shutdown).”

Guggenheim’s Michael Morris, who has a “buy” and a price target of $570, pointed to India and the Asia-Pacific region as encouraging growth areas. ” International growth, particularly in high-growth, mobile-centric markets, remain fundamental to the Netflix bull case,” he wrote in a research note, “with local partnerships as a key driver. In 3Q, Netflix localized its service to support Hindi within its user interface and launched a partnership with India’s largest mobile-operator, Reliance-Jio, to bundle mobile and fiber
broadband plans and integrate Jio set top boxes.”

Jeffrey Wlodarczak of Pivotal Research maintains one of the highest price targets on Wall Street for Netflix and he raised it another $10 to $660 after the quarterly numbers. The company benefits from a “virtuous cycle,” he wrote in a note to clients, with its revenue growing as subscriber numbers rise, which then enables it to invest in content, which in turn attracts new subscribers.

Competition in streaming is not a concern for Wlodarczak. He views Disney+ as complementary to Netflix. Among the other new challengers, he doesn’t see HBO Max as a threat. “There is a reasonable shot that AT&T management will screw up HBO (in similar fashion to DIRECTV) as a competitor,” he wrote.

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Netflix Will Offer Free Trial Of Its Full Service For A Weekend, Starting In India

Netflix will offer a free trial of its full service to everyone in a country for one weekend, starting in India and going to other global territories.

The streaming giant revealed the plan during its third-quarter earnings interview, which followed the release of results that undershot subscriber and earnings estimates.

Chief Product Officer Greg Peters said the giveaway “could be a great way to expose a lot of people” to the service. He called it “an idea that we’re excited about and we’ll see how it goes.” No details were announced about the timing or details of the offer.

Netflix recently ended a 30-day free trial promotion. The company runs hundreds of “A/B” tests of a wide range of product features as well as promotional efforts. In terms of promotions, it has a wide range of different initiatives in different parts of the world. As COVID-19 kicked in, the company made a selection of documentary films and shows available free via YouTube as a way of helping schoolteachers.

Co-CEO Ted Sarandos said the company is “always looking at new, different ways for people to get a sample of the content that everyone’s talking about, including trying our service out in different ways.”

On a similar note, when asked by interview moderator Kannan Venkateshwar, a media analyst at Barclays, Sarandos said the company is not actively considering “reverse licensing” of its own originals to other platforms. Free streaming platforms like Pluto have set a number of deals recently with cable properties like The Walking Dead and recently Netflix drama Narcos. Sarandos said Gaumont owns Narcos and was able to make that deal.

“Mostly I think it’s important for us to keep our content on Netflix, so that people understand the value of Netflix,” Sarandos said.

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'Stronger than ever': Here's what 4 Wall Street banks expect from Netflix's 3rd-quarter earnings report


  • Netflix is set to report third-quarter earnings Tuesday afternoon, offering investors the latest look at how its subscriber growth has held up after soaring through the start of the pandemic.
  • While most of Wall Street has high hopes for the company, many analysts fear increased competition and the release of a controversial movie could fuel short-term turbulence.
  • Here’s what four major banks expect when the streaming titan releases its third-quarter report.
  • Watch Netflix trade live here. 

Netflix is slated to report third-quarter earnings Tuesday afternoon, and despite some near-term concerns, Wall Street remains largely bullish on the streaming platform.

The third quarter saw obstacles emerge from economic reopenings, controversy around French drama title “Cuties,” and new competition in the streaming sector. The first half of 2020 boosted the streaming giant, as stay-at-home orders fueled a surge of new subscribers and engagement.

Wall Street is now curious to see how it handles the slowed pace of economic recovery and a fading of the first-half rally.

Here’s what four major banks expect from the streaming giant’s third-quarter report, from subscriber growth trends to future price changes.

Read more: We spoke to 4 US Investing Championship contenders who raked in a combined return of 1,349% in just 9 months. Here are the 11 books they say transformed them into trading juggernauts.

Bank of America: ‘Cautious stance on 3Q subscriber growth’

Analysts led by Nat Schindler see a handful of uncertainties risking a quarterly stumble in subscriber growth. The release of “Cuties” spurred record churn signals from firms tracking Netflix accounts. Increased competition from Disney Plus and Peacock presented hurdles, as did the return of live sports events. Reopening pressures in the third quarter may have also stifled growth, the team said.

“While we believe Netflix conservatively assumed some normalization of churn, we believe some events such as the ‘Cuties’ backlash were unforeseen at the point they issued guidance,” the analysts wrote Friday.

Still, Bank of America expects the streaming giant to add 2.5 million new subscribers, roughly in line with its previous guidance. The “cautious stance” on subscriber growth represents temporary turbulence, and Netflix’s long-term opportunity is “stronger than ever,” the analysts said. The subscriber boost through the first half of 2020 has solidified as a permanent benefit, and healthy cash flow sets the company up for healthy growth as the economy recovers, they added.

Read more: Bank of America shares 12 under-owned stocks likely to soar on earnings this quarter with investing conditions ripe for the picking

RBC Capital Markets: ‘Continue to benefit from the limited entertainment options’

Analysts at RBC Capital Markets largely expect Netflix’s revenue and earnings to land slightly below Wall Street expectations but still hold a bullish outlook on its shares. A survey recently conducted by RBC shows consumers around the world are willing to pay for multiple streaming services, cutting away at competition concerns.

Netflix also raised prices in Australia and Canada through the quarter, and reports suggest the company is doing away with free trials in the US. With subscriber growth still set to hit Netflix’s 2.5 million target, the higher prices should equate to stronger revenues.

Lasting movie-theater closures also play into the streaming company’s hand, RBC said. AMC recently warned investors it may run out of cash before the end of the year, and Regal closed all of its US locations to shore up capital.

“We think Netflix should continue to benefit from limited entertainment options available for consumers in a pandemic,” RBC’s analysts said.

Read more: Cathie Wood runs 5 funds that more than doubled broader market returns in the 3rd quarter. She and her team break down 8 winning stocks turbocharging the outperformance of its top ETFs.

Morgan Stanley: ‘Netflix’s competitive moat is perhaps deeper than ever’

The bank raised its price target for Netflix shares to $630 from $600 in its Friday pre-earnings note. Analysts led by Benjamin Swinburne echoed praises of Netflix’s pricing power and, like their peers, expect on-target subscriber growth of 2.5 million additions. The team also expects Netflix to be free-cash-flow positive for the first time since it started building out its streaming service, hitting a key revenue goal as the coronavirus slams other industries.

While the team has some concerns around heightened churn rates, they still view strong engagement levels as an offsetting factor. Netflix’s lead in the streaming industry also placed it in an advantageous position once the pandemic began, Morgan Stanley said.

“We believe Netflix’s competitive moat is perhaps deeper than ever today,” they said, adding “production delays due to COVID have likely impacted its competitors more significantly.”

JPMorgan: ‘Download recovery should persist in 4Q’

Analysts at JPMorgan are markedly more optimistic regarding Netflix’s third-quarter subscriber growth. While peer firms expect the streaming service to add 2.5 million users, JPMorgan sees it taking on 5.1 million, citing stronger content and stabilizing daily-active-user growth in September.

The favorable trends are likely to spill into the current quarter and set up Netflix for blockbuster 2020 figures, the team added.

“With September’s improvements, more hit content, and traditionally favorable seasonality, daily active user growth and download recovery should persist in 4Q,” they wrote in a note to clients. The team projects 7.25 million new subscribers in the current quarter. 

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World News

How to delete your Netflix viewing history, and prevent something you've watched from affecting your viewing recommendations

  • You can delete your Netflix history one title at a time, but you can't erase your entire history at once.
  • Deleting your Netflix history will stop those movies and shows from appearing in your "Continue Watching" section, as well as alter what Netflix recommends you in the future.
  • To delete your Netflix history, you'll need to use the Netflix website on a computer.
  • Visit Business Insider's Tech Reference library for more stories.

Most of the time, this is a good thing — because Netflix knows exactly what you are watching, it can place shows in progress in the "Continue Watching" section so you can easily pick up where you left off. It also can use shows you have watched to make better recommendations about what you might want to see in the future.

But if you don't want Netflix to use your viewing history, you have a little control. You can remove individual movies and TV shows from your history. This can keep Netflix from making viewing recommendations and is a sort of "nuclear option" for keeping other people on your account from seeing what you're watching.

But since you can't delete your entire viewing history at once, this can be time-consuming if you want to delete a lot of items.

How to delete your Netflix viewing history

1. In a web browser, go to the Netflix website. You can do this on a computer or in a browser on a mobile device, but you can't use the Netflix mobile app.

2. Click your account icon at the top right of the browser window, and then click "Account."

3. Scroll down to the section called My Profile and click "Viewing Activity."

4. On the My Activity page, you'll see a list of the most recent Netflix movies and TV shows you have watched. To see more, scroll to the bottom and click "Show More."

5. To remove a video from your viewing history, click the "stop" icon to the right of "Report a Problem."

6. Repeat that process for any other movies or shows you want to remove.

Anything you delete will be removed from your viewing history within 24 hours.

Related coverage from Tech Reference:

  • How to download Netflix movies and shows onto your phone or tablet to watch when you're without internet

  • How to cancel your Netflix subscription, however you subscribed to it

  • How to log out of your Netflix account on any Roku device

  • 'How much does Netflix cost?': All of Netflix's subscription plans, explained

Disclosure: Mathias Döpfner, CEO of Business Insider’s parent company, Axel Springer, is a Netflix board member.

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