Despite Earnings Miss And Dismal Guidance, Goldman Says Netflix Outlook Is Unchanged

With the “highly anticipated risk of 3Q guidance” not behind us, Goldman Sachs’ Heath P. Terry believes Netflix, Inc. NFLX's share price weakness could be short lived.

Terry maintains a Buy rating on the company, while lowering the price target from $120 to $115.

2Q Results

The analyst mentioned that Netflix reported its 2Q results, with the revenue in line with the consensus expectations. Revenue growth came in at 30 percent year-on-year, ex-FX, consistent with 1Q.

Domestic and international subscriber growth for the quarter was, however, below the consensus, although gross additions were in line with the guidance and churn came in at 20 bps above the guidance.

Related Link: Morgan Stanley Calls Netflix's Q2 Earnings Report The "Mother Of Misses"

The GAAP EPS of $0.09 was ahead of the consensus forecast of $0.03, driven by tax rates and operating leverage.

However, the 3Q subscriber growth guidance missed expectations.

“While pricing strategy continues to prove challenging for management, the long-term outlook for subscribers and profitability is unchanged, in our opinion,” Terry stated.

Subscriber Growth

Domestic streaming net additions for 2Q came in at 0.2 million, below the guidance of 0.5 million, while international additions stood at 1.5 million, compared to the guidance of 2.0 million.

“Management guided to 0.3mn domestic net adds and 2.0mn international net adds in 3Q vs. consensus of 0.8mn and 2.9mn, respectively,” Terry said.

The 2016–2018 revenue and adjusted EBITDA estimates have been reduced by 2 percent and 11 percent on average, respectively, to reflect the investment in international higher than anticipated impact of “ungrandfathering.”

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