Netflix share price: how 8 top analysts responded to the Q2

Netflix beat its own guidance as part of its second quarter update, but weak guidance for the quarter ahead has seen sentiment sour, with the stock trending lower since the earnings release. The stock is down 7.37% in the last five sessions, finishing out Wednesday's session at $513.63 per share.

Q2 summary

On the top-line, the streaming giant reported second quarter revenues of $7.2 billion, representing a year-on-year increase of 19%; while growth in operating income came in at an accelerated pace, rising 36% during the quarter, hitting $1.8 billion.

Those revenue figures were driven by solid Q1 net subscriber growth numbers. Here, the streaming giant beat its prior guidance by about 500 thousand, revealing total net paid subscriber additions of 1.5 million. The majority of that growth was driven by a steep increase in paying subscribers from the APAC region.

While those Q2 figures actually beat on what analysts were expecting in the second quarter (with Wall Street forecasting net sub adds of 1.12 million), it was the company’s Q3 subscriber guidance that looks to have disappointed the market.

Netflix’s management told the market they expected to add 3.5 million subscribers in the upcoming third quarter, well below Street estimates of 5.86 million Q3 net subscriber additions.

Netflix share price outlook: the analyst view?

While the streaming giant undershot that guidance, Wall Street in general responded positively to the Q2. Here’s how 8 top analysts responded to the earnings:

• Analysts from Oppenheimer reiterated their Buy rating and left their $620 price target unchanged
• JP Morgan analysts raised their price target to $625 from $600 and kept their Overweight rating
• Deutsche Bank reiterated their Buy rating and upgraded their price target from $575 to $590
• KeyCorp lowered their price target, though maintained their Overweight rating
• Wedbush reiterated their Underperform rating and price target of $342
• Credit Suisse raised their price target from $583 to $643 and shifted their rating from Buy to Outperform
• Stifel Nicolaus analysts boosted their price target from $60 to $580 and maintain their Buy rating

The COVID elephant

While the pandemic was a boon for Netflix, it has created distinct problems. Comps are more difficult and we are ultimately seeing the impact of immense amounts of growth being pulled forward.

'The pandemic has created unusual choppiness in our growth and distorts year-over-year comparisons as acquisition and engagement per member household spiked in the early months of COVID,’ Netflix management said.

Despite that, using the pre-COVID period as a base, management noted that they have observed good retention levels, saying:

'Retention continues to be strong and better than pre-COVID Q2'19 levels, even as average revenue per membership has grown 8% over this two-year period, demonstrating how much our members value Netflix and that as we improve our service we can charge a bit more.'

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