Morgan Stanley Calls Netflix Q2 Earnings Report The 'Mother Of Misses'

Netflix reported Q2 earnings per share at $0.09 vs. estimates of $0.02 and revenue of $2.015 billion vs. estimates of $2.11 billion, but what scared investors was the disappointing subscriber growth.

"We are growing, but not as fast as we would like or have been," said a Netflix representative. The company reported a subscriber growth of 1.7 million, below forecasts of 2.5 million net new members.

Morgan Stanley's Take

Despite calling Netflix's earnings report "the mother of all misses," Morgan Stanley's Benjamin Swinburne maintained Netflix's overweight rating while decreasing the price target from $125.00 to $110.00.

Swinburne originally believed Netflix investors were "too dismissive about the price un-grandfathering coming to over half of the Netflix US sub base for some time."

Related Link: Bernstein Analyst Says The Netflix Story Is Worse Than You Think

Although the analyst wasn't correct in believing the impact of un-grandfathering would only be "modest," to share prices, increasing subscription prices was not the main problem for Netflix according to Swinburne.

The Real Miss For Q2

The real miss for Q2 was a heightened discontinuation rates for members not facing a price increase this year, said Swinburne. "We acknowledge that overall churn through this rate adjustment process is higher than we and Netflix management expected," stated the Morgan Stanley analyst.

According to TipRanks, Swinburne is one of the better analysts covering Netflix, with a 63 percent success rate and a +10.2 percent average return per recommendation. The analyst is ranked 445 out of 4,064 analysts.

At time of writing, Netflix traded at $85.16, down 13.91 percent in Tuesday's pre-market session.

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