Can Netflix Rebound? Mark Cuban Thinks So
Netflix, Inc. (NASDAQ: NFLX) last week beat Wall Street estimates for EPS by $0.03, but missed estimates for new subscribers. The company attributed the disappointing growth figures to increased prices compared with a year ago.
As a result, Netflix cratered in after-hours and premarket trading and at one point was down nearly $125.00 from last Wednesday's close, when it bottomed at $324.33. Calmer heads prevailed in the regular session as it opened near its lows for the session ($331.00) and rallied to end the session at $361.70, still $86.89 lower on that day.
Being a high priced issue that trades at a high price-to-earnings ratio (94.43), the carnage might come as no surprise to the momentum-investing crowd that wants continued signs of growth to validate lofty price levels. When the growth outlook is altered, it has an immediate impact on share price, as witnessed last week.
Retreating From All-Time Highs
The decline comes about one month removed from the making of its all-time high on September 9 ($489.25). That capped a monster run than emanated from its August 2012 low ($52.81), an astounding 825-percent gain.
Some investors may have taken some chips off the table prior to its earnings release, as the issue had traded down to $430.18 before rebounding to $448.59 to end last Wednesday's session. Keep in mind, there was turbulent trading in the broad market on the whole and may have contributed to the decline ahead of the report.
Chart courtesy of Neovest
Analysts Late To The Game
The unexpected move initiated and drove price target changes from Wall Street analysts. Several firms lowered their targets, as many that were in $500's came down to the mid $400's. Two firms, Canaccord Genuity and Goldman Sachs, have Buy ratings lowered their price targets from $550.00 to $450.00. Topeka Capital lowered its price target the least, from $527.00 to $511.00. The Street high target resides with BTIG at $600.00.
Mark Cuban Defends Netflix
The precipitous decline caught the attention of one high-profile investor, who viewed the decline as a major buying opportunity. Mark Cuban, Dallas Mavericks owner and technology entrepreneur, tweeted that someone will buy Netflix.
Cuban announced on CNBC that he recently purchased 50,000 shares on the decline. In his opinion, "it's rare when a market dominating company is this cheap." It appears Cuban is taking a page out of Carl Icahn's playbook by making such bold statements and putting them out to the public.
So far, Wall Street has partially sided with Cuban's view on Netflix. The issue has made two higher lows since Thursday's bloodbath and was more $5.00 higher than last Thursday's close ($361.70) at the time this article was written.
In Monday's session, Netflix traded at its highest level since its recent collapse, reaching $369.21. Netlifx bulls looking for the move to continue will need to be patient as there may be willing sellers all the way back up to its October 15 low ($430.18). Once an issue has such a steep and unexpected decline, many long-term investors may not want to miss out on another opportunity to exit in the $400.00 handle.
Netflix bears attempting to cover shorts or investors to looking to attempt a long may have missed the panic-induced bottom last week.
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|Jan 2017||Loop Capital||Maintains||Buy||Buy|
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