Netflix Growth Can Re-Accelerate Following Impact Of Price Increase, Says Pacific Crest

Netflix, Inc. NFLX reported disappointing 2Q16 results and 3Q16 guidance. Pacific Crest’s Andy Hargreaves maintained an Overweight rating on the company, while reducing the price target from $130 to $125. The analyst commented that Netflix’s competitive advantages and long-term opportunity remained intact, and growth could resume following the impact of the price increase.

Netflix reported its Q2 global net adds at 1.68 million, short of the guidance and Pacific Crest estimates of 2.5 million. The miss was on account of higher-than-expected churn, analyst Andy Hargreaves mentioned. Global revenue came in at $2.1 billion, in-line with expectations, while profits beat the estimate on the back of lower-than-expected costs.

Netflix guided to Q3 net adds of 2.3 million, meaningfully below the Pacific Crest estimate of 3.75 million, as the company continues to witness higher-than-expected churn due to the price increase.

Growth To Reaccelerate

Netflix has witnessed stable gross adds, despite the higher near-term churn. This suggests “the model is still working,” and incremental churn is likely to be “largely one-time in nature rather than an ongoing headwind,” Hargreaves stated.

Estimates Reduced

The EPS estimates for 2016 and 2017 have been reduce from $0.46 to $0.34 and from $1.72 to $1.20, respectively.

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