The Ratings Game: Netflix’s stock jumps 4.5% — but not all analysts are subscribing to the hype

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Netflix Inc.’s stock rallied Thursday, as investors homed in on earnings and subscriber beats, but a number of Wall Street analysts have taken a more negative view after the streaming video giant warned that growing competition could take a bite out of future results.

The stock NFLX, +3.91%  gained 4.5% in morning trading, but pulled back from earlier gains of as much as 7.8%, after the company reported third-quarter results after Wednesday’s closing bell.

A big concern on Wall Street was subscriber additions, so investors cheered that Netflix reported net adds that rose to 6.8 million from 6.1 million a year ago, which was above the FactSet consensus of 6.7 million but below the company’s guidance of 7.0 million.

Although many analysts said results and outlook on competition weren’t as bad as feared — with Macquarie Research’s Tim Nollen saying the company had “defied the naysayers”— only a very few felt they were good enough to improve the stock’s outlook.

Read more about coming Netflix competition.

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Of the 14 analysts surveyed by FactSet who revised their stock price targets, 12 cut them, and one even cut his rating. The average analyst rating remained at overweight, but the average price target fell to $371.34 from $393.26 as of Sept. 30.

Netflix’s stock has tumbled 20% over the past three months, while shares of Walt Disney Co. DIS, +1.38%, which launches its rival Disney+ streaming service next month, have lost 7.1% and the Dow Jones Industrial Average DJIA, -0.08%  has slipped 0.4%.

It was Macquarie’s Nollen who downgraded Netflix to neutral, after being at outperform for nearly two years. He also slashed his price target by 13% to $325 from $375.

He said that while earnings and revenue were “impressive” and Netflix still as an “excellent” opportunity for international growth, “it’s hard to deny the U.S. is maturing,” as domestic subscriber growth was half of what it was and the boost to revenue from price increases is wearing off.

“We expect competition coming from Disney+ and others, especially in the U.S., will have only a modest effect on churn, but we think it will be hard for Netflix to grow much more in the U.S., and we suspect pricing power is limited,” Nollen wrote in a note to clients. “Content costs continue to rise and marketing demands remain high, and the turn to positive [free cash flow] will take many years, while another debt raise is forthcoming.”

Bank of America Merrill Lynch’s Nat Schindler remained one of the more bullish analysts, saying the worst of bears’ fears were alleviated. But he nevertheless cut his price target to $426 from $450, citing a “lower cadence” for U.S. subscriber adds and to “add conservatism” as rising competition makes subscriber growth more difficult.

Analyst Mark Mahaney at RBC Capital said subscriber additions were “much better than feared,” but he cut his price target to $420 from $450 as he is now “less bullish” on global subscriber adds, “slightly more confident on the margin outlook” and slightly less positive on [Netflix’s] pricing power.”

Among the few analysts who raised their price target, Pivotal Research’s Jeffrey Wlodarczak lifted his to $400 from $350, saying the results show that competition concerns are over overdone.

Wlodarczak believes Netflix’s stock is now set up to “climb a wall of worry” around the launch of Disney+, which he believes will be “complementary” to Netflix as it will likely help accelerate the decline in traditional pay-TV services.

Meanwhile, analyst Brian White at Monness, Crespi, Hardt & Co. raised his price target to $350 from $340.

“The paralyzing fear that gripped Wall Street heading into last night’s call was unprecedented; however, Netflix’s performance was good enough to stabilize the stock,” White wrote.