Netflix, Inc. (NFLX) shares did an about-face during regular trading hours today, slumping after climbing by as much as 9% in after-hours trading last night as investors took quick glances at the company’s fourth quarter earnings report. After a closer read, apparently Wall Street is having a bit of buyer’s remorse today. Analysts have weighed in on the report, and the commentary is somewhat mixed with at least two firms raising their price targets and at least one cutting its target.
Netflix shares tumbled by as much as 9.34% to $97.91 per share during regular trading hours today.
Snapshot of Netflix’s results
Total revenue climbed 23% year over year to $1.82 billion, which was almost in line with the consensus of $1.83 billion. GAAP earnings were 10 cents per share, beating the 2 cent consensus. Domestic subscriber adds were 1.56 million, missing the estimate of 1.62 million, while international subscriber adds were 4.04 million, beating the consensus of 3.51 million.
Has Netflix’s growth peaked?
FBR & Co. analysts Barton Crockett, Chase White and Zack Silver cut their price target from $138 to $125 per share but maintained their Outperform rating on the stock. The cut brings them closer to where most firms are on their targets, however.
They said that Netflix shares had a sort of split personality after last night’s closing bell as investors picked up on one or two of the positive or negative data points, placing more importance on them than on the other metrics. For example, the video streaming company beat slightly on international subscribers but missed slightly on domestic subscribers.
The FBR team sees this mix as being a negative one for the company because they think the U.S. business will serve as a model for the international business. As a result, this discounts the “blue-sky growth hopes abroad,” they wrote. They believe we’re starting to see Netflix’s growth peak and that the company’s best year for growth in a particular market is launch year.
Netflix may need to raise funds
The FBR team also warns investors that the company might need to raise some capital in the near term. It is ramping its original content to 600 hours this year, compared to last year’s 450 hours. Further, Netflix is “incurring cash flow-negative up-front financing,” resulting in a $900 million negative free cash flow last year.
For this year, they see the potential for more than $1 billion in negative free cash flow, which they think means the company might need to add an additional $1 billion in debt to the $2.4 billion it already has, which will keep its cash at its $1 billion target. The FBR team adds that Netflix’s debt is trading like it has a BB rating, but the current volatility means that the need to borrow in order to support growth becomes “riskier than usual.” Management did say last night that they will probably add more debt late this year or early next year.
Raymond James analysts Justin Patterson and Aaron Kessler were less worried about the capital raise, emphasizing that it isn’t imminent. The company had $2.3 billion in cash and short-term investments on its balance sheet at the end of the quarter. They reiterated their Outperform rating and $130 price target for Netflix shares.
Other price target adjustments
Jefferies analyst Brian Fitzgerald and team also upped their price target for Netflix, bringing it from $105 to $120 per share, and maintained their Hold rating. They’re also now about in line with much of Wall Street with their target, with one outlier being Stifel, which has a $143 price target. Baird is slightly lower at $115 per share. Credit Suisse analysts also adjusted their price target higher, bringing it from $119 to $126 per share.