Oppenheimer Believes U.S. Subscriber Growth For Netflix Still At Risk In Q3

Guidance

U.S. net additions guidance of 300 thousand was significantly below the Street's 800 thousand. International net additions guidance was 2 million or 1.4 million/0.9 million below Opco/Street.

"While US net add miss was partially offset by higher ARPU, peak impact of pricing change will be in 3Q, suggesting continued risk to US subs," analyst Jason Helfstein wrote in a note.

Netflix blamed higher churn in the second quarter on "normal" vs. "inactive" users on increased press coverage around pricing change. Management reiterated that U.S. contribution margin growth was on track.

Growth At Home And Abroad

That said, international growth also remains slow, as localization efforts are taking time and money, with Turkey and Poland as the next markets in focus.

Related Link: Netflix Craters On Big Subscriber Miss

Furthermore, U.S. margin is running ahead of the 2020 target of 40 percent. Netflix said, "2010–2013 launch markets will generate $500 million profit in '16, and long-term international margin should approach US."

Recent Performance

Netflix plunged 13 percent in the pre-market trading after the Internet streaming major's second-quarter results as well as the third quarter outlook missed Street view.

"While NFLX is best positioned to build global SVOD platform, 2016 will be a transitional year," Helfstein noted.

The analyst cut 2016E/2017 global subscriber outlook by 4 percent/12 percent and slashed '16/'17 revenue estimates by 1 percent/8 percent, despite higher ARPU. However, Helfstein raised ‘16 and ‘17 non-GAAP EPS view by $0.26 and $0.53, respectively.

The analyst maintains his Outperform rating on Netflix shares, while trimming the price target to $114 from $123.

Shares of Netflix closed Monday's regular trading at $98.81. In the pre-market hours Tuesday, the stock plunged 13.47 percent to $85.50.

At time of writing, Netflix was down 13.98 percent on the day at $85.

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