After a brief two-day slide, Netflix, Inc. (NASDAQ:NFLX) stock is back on track today, although it still has ground to make up since its peak on Friday into early Monday. Short-sellers were rejoicing as Netflix stock tumbled following a bearish call from Citron Research’s Andrew Left, but today, it was a different story, as the company has received a price target increase from Guggenheim.
Analyst Michael Morris sees a path to an astonishing $360 per share for Netflix stock. He raised his price target from $285 to $360 per share and maintained his Buy rating on it. He believes the company is investing in “an underappreciated global subscriber opportunity” and predicts that its international subscriber base will grow faster than the GDP of the U.S. will grow.
If Netflix stock were to reach his new $360 price target, the company’s market capitalization would become larger than Walt Disney’s current market cap, which stands at around $156 billion, The Street noted. This is certainly an interesting comparison in light of recent commentary from Barclays which drew comparisons between the two entertainment companies.
In addition to the bullish Guggenheim note, Buckingham Research Group analyst Matthew Harrigan released a bearish report. He continues to rate Netflix stock at Neutral with a $257 price target as his base case. His upside case for Netflix stock puts it at $369, while his downside case plunges it all the way down to $169 per share.
Harrigan noted that Netflix stock has gained more than 60% year to date and about 155% since the end of 2016. Over that same time frame, the consensus estimate for operating profits in 2022 is up by only 22%, although he also points out that content investments are weighing on the streaming company’s profits. He is concerned that growth estimates for Netflix “uncomfortably suggest” that the company will gain additional market share despite the fact that competition in the streaming space continues to heat up.
However, he does expect the company’s global share of the streaming video-on-demand market to rise from 48% last year to 72% in 2022, excluding China. He sees China as a goldmine if Netflix can get in, but he also pointed out that it’s unlikely because of the nation’s crackdown on “social and traditional media.”
Netflix stock soared nearly 2% in intraday trading on Wednesday after tumbling the first two days of the week. The shares fell by about 3% on Monday, finally offering some relief for short-sellers, who gained about $209 million, according to data from financial analytics firm S3 Partners. Year to date, short-sellers had lost about $2.95 billion as of the end of last week. Monday’s and Tuesday’s declines offered relief, but their hopes were dashed by the sudden turnaround today.
The trigger for the two-day selloff in Netflix stock was a bearish recommendation from Andrew Left of Citron Research, who recommended that investors start shorting it. He set a price target of $300 per share. S3 Partners Managing Director Ihor Dusaniwsky called out Left’s assessment of short interest in Netflix stock on Monday.
Left had said that it was at a “10-year low,” but Dusaniwsky said that the 20.5 million shares that were sold short at the time amounted to the “lowest level of shares shorted since June of 2002,” which was only two months after the company’s initial public offering. Netflix short interest was at $6.8 billion as of earlier this week, which Dusaniwsky said was up 63% year to date and marked the highest level of short interest in its history. He explained that short-sellers have been covering their positions in Netflix stock because it kept rising and they had to “trim their shares shorted to remain within their dollar risk limits.”
“Bottom line, there are many reasons why an investor would short NFLX stock,” Dusaniwsky commented in an email. “But Andrew Left’s comment that NFLX short interest is at recent lows is not accurate — shorts have actually been increasing their NFLX exposure in 2017 and 2018 even as they’ve incurred over $4.5 billion in mark-to-market losses over that time period.”
Other potential factors in the two-day selloff of Netflix stock included commentary from Apple executive Eddy Cue, who dashed all hopes that the iPhone maker would attempt to buy the company. The Financial Times also offered bearish commentary on the streaming firm earlier this week.
