Wall Street analysts on Wednesday debated whether Netflix stock is on the comeback trail following the company's mixed second-quarter earnings report.
After the internet television network reported June-quarter results late Tuesday, six analysts raised their price targets on Netflix stock and seven lowered their targets.
Wells Fargo analyst Steven Cahall believes Netflix "has found a bottom, assuming subscriber growth doesn't hit any new cliffs."
In a note to clients Wednesday, Cahall reiterated his equal-weight rating on Netflix stock with a price target of 300.
Netflix Stock Rebounds From Recent Low
On the stock market today, Netflix stock rose 7.4% to close at 216.44.
Netflix hit a five-year low of 162.71 on May 12. It notched its all-time high of 700.99 last November.
But Netflix has a lot of challenges in the next year, Cahall said. They include implementing a lower-cost, advertising-subsidized service level and monetizing rampant account sharing. Netflix sees a gradual rollout for both initiatives.
KeyBanc Capital Markets analyst Justin Patterson remains cautious on Netflix after the video streamer's report.
"We see more questions than answers in Netflix's Q2 report," he said in a note to clients. Netflix's revenue growth and profit margins will be challenged as it attempts to stabilize its subscriber base, Patterson said. He rates Netflix stock as sector weight.
'Stranger Things' Reduces Subscriber Churn
Netflix lost 970,000 subscribers in the second quarter, mostly in the U.S. and Europe. But that was less than the 2 million subscriber loss it forecast three months ago. It ended the June quarter with 220.67 million subscribers worldwide.
Netflix executives credited their hit show "Stranger Things" for helping to minimize subscriber losses in the period.
Evercore ISI analyst Mark Mahaney said Netflix has a lot to prove before it can convince skeptics that it has turned a corner. He rates Netflix stock as "in line," or neutral.
The main problem for Netflix is that growth has slowed significantly, from 30%-plus revenue growth in 2019 to 12% or 13% in 2022 excluding foreign-exchange impact, Mahaney said. That's due to market maturity and competition, he said.
"The (stock) market will need to see real success from the ad-supported and password-sharing initiatives before ascribing a sustainably premium multiple to Netflix," Mahaney said in a note to clients. "And we don't think evidence of this success will be apparent until late '23."
Bullish Guidance On Free Cash Flow
Wedbush Securities analyst Michael Pachter maintained his outperform rating on Netflix stock with a 12-month price target of 280.
"Netflix is appropriately responding to macroeconomic headwinds by lowering costs to accommodate slower revenue growth, and has become laser focused on free cash flow generation," Pachter said in a note to clients.
He added, "We think its guidance for 2022 free cash flow of roughly $1 billion and annual growth from there essentially underscores the bull case for the stock."
Pivotal Research analyst Jeffrey Wlodarczak reiterated his sell rating on Netflix stock and cut his price target to 175 from 235.
Netflix is at a disadvantage to diversified competitors such as Amazon, Apple and Walt Disney, he said.
"In our view, the most prudent move for Netflix management is actually to look to sell the company with recent advertising partner Microsoft (which lacks a streaming product) the most logical partner," Wlodarczak said in a report.
Needham analyst Laura Martin suggested in a report last week that Netflix picked Microsoft as its ad-tech partner to position itself for a potential buyout.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
