'Final nail in the bear case coffin': Here's what 4 analysts had to say about Netflix's 4th-quarter earnings

Netflix

• Netflix reported earnings on Tuesday that trounced estimates for revenue and subscriber growth.
• While earnings missed expectations, shares climbed as investors praised improved sales and hopes for near-term share buybacks.
• Here’s what four analysts had to say about the company’s fourth-quarter report.
• Watch Netflix trade live here.

Netflix reported fourth-quarter results on Tuesday that surged past analyst expectations and lifted shares to record highs.

The streaming giant revealed it added 8.51 million paid subscribers through the quarter, handily exceeding forecasts and its own guidance. While the growth lagged that seen in recent years, it suggests the resurgence of COVID-19 and renewed lockdowns drove more people to Netflix’s service. The addition also pushes Netflix’s total paid subscribers above 200 million. 

Revenue landed just above analyst hopes, though profit missed expectations. Netflix noted in a follow-up announcement that it aims to be cash-flow neutral this year and will consider buying back shares for the first time since 2011.

Here are the key numbers:

• Revenue: $6.64 billion, versus the $6.63 estimate
• Earnings per share (GAAP): $1.19, versus the $1.39 estimate
• Q4 global paid subscriber growth: 8.51 million, versus the 6.03 million estimate

Investors ignored the profit shortfall and piled into the stock. Netflix climbed as much as 15% on Wednesday, gaining $34 billion in market value at intraday highs. But where investors are overwhelmingly bullish, some analysts highlighted concerns around how Netflix will perform in the new year.

Here’s what four Wall Street analysts had to say about the company’s fourth-quarter report.

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Credit Suisse: ‘Final nail in the bear case coffin’

Analysts led by Douglas Mitchelson praised Netflix’s move to restart stock repurchases, calling it “an important inflection point” in the maturation of its business model. Buybacks signal strength across trends including user churn, subscriber usage, and content development, the team said. Better-than-expected growth in emerging markets also points to continued success.

“Netflix hammered the final nail in the bear case coffin,” Credit Suisse said, adding they expect stock buybacks to start in the second half of the year.

The analysts lifted their price target to $586 from $525 in response to the beat, but maintain a “neutral” rating on Netflix. Content costs and economic reopening present significant downside risks, and management’s forecast for 6 million new subscribers in the first quarter “suggests a soft start.” Stock buybacks, while notable, won’t create much long-term value, they added.

“Notwithstanding bulls seeing the first-quarter guide as overly conservative, 2021 will be a long year and other entry points will likely present themselves.”

Wedbush: ‘Optimism … seems to us to be misplaced’

Wedbush analyst Michael Pachter similarly lifted his price target for Netflix shares but holds a considerably more bearish outlook. The fourth-quarter results exceeded expectations and the move toward positive free cash flow is encouraging, he wrote in a Wednesday note. Yet hurdles remain should Netflix seek to reach neutral free cash flow this year.

“We have been consistently wrong about Netflix, but optimism about the company’s potential to generate free cash flow growth of more than $1 billion per year seems to us to be misplaced,” Pachter said. 

Still, Wedbush doesn’t expect any competitors to threaten Netflix’s lead in the near term. The company now boasts enough original content to charge recently lifted prices and still keep its legacy subscribers, Pachter said. It’s competitors offer less expensive alternatives, but none have the “breadth and depth of content” needed to poach Netflix users, he added.

Wedbush reiterated its “underperform” rating for Netflix with a price target of $340.

JPMorgan: ‘Free cash flow and buybacks take center stage’

Netflix’s beat on subscriber growth and revenue impressed, and the company’s first-quarter guidance is fairly conservative, JPMorgan analysts led by Doug Anmuth said. Lifted lockdowns in Europe and other regions and a strong content pipeline should help the streaming giant clear its own expectation, they added.

Despite the impressive growth metrics, positive cash flow and stock buybacks “take center stage,” the bank said. Like Credit Suisse, the team expects buybacks to start in the second half of 2021. JPMorgan also projects stronger margins in the first half of the year before hiring and increased travel lift costs.

The analysts lifted their price target to $685 and reiterated their “overweight” rating on Netflix shares.

Risks to the company’s near-term outlook remain. Pulled-forward subscriptions could cut into the company’s first-quarter additions, as could price increases in bigger international markets like the UK and Germany, the team said. The lack of free trial promotions that proved popular in past holiday seasons might also cut down on new paying users, they added.

Goldman Sachs: Opportunity ‘goes well beyond NFLX’s current share price’

Analysts led by Heath Terry joined those in the bullish camp, praising the company’s accelerated move toward positive cash flow and leap in new subscribers. Goldman Sachs also deemed Netflix’s first-quarter guidance “conservative,” noting price hikes and recent outperformance shouldn’t dent user growth in early 2021.

Ignoring Wednesday’s gains, Netflix traded essentially flat over the last six months despite the S&P 500 and Goldman’s basked of stay-at-home stocks climbing 17% and 19%, respectively. The lack of appreciation marks an appealing buying opportunity for investors as the company continues to further its lead against competitors, the analysts said.

“We believe the scale of Netflix’s subscriber opportunity beyond the current crisis, as well as the option value in a platform with video connections into the homes and devices of over 200 million subscribers, goes well beyond Netflix’s current share price,” they added.

Goldman reiterated its “buy” rating and lifted its price target to $710 from $670.

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