'We feel worse about subscriber growth': Here's why Wall Street is striking a more cautious tone after Netflix's latest earnings

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'We feel worse about subscriber growth': Here's why Wall Street is striking a more cautious tone after Netflix's latest earnings

stranger things netflix

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  • The market rewarded Netflix on Thursday for demonstrating it can still grow its business on a global basis and beat earnings forecasts.
  • The company reported international subscribers additions that came in ahead of estimates, while gross margins and earnings per share handedly beat forecasts.
  • Despite shares charging as much as 11% higher on the news, Wall Street analysts are striking a more cautious tone on the streaming giant's third-quarter results.
  • Here's what analysts are saying about Netflix's mixed quarter.
  • Watch Netflix trade live.

Netflix's stock surged after strong third-quarter earnings on Wednesday, which was a welcome development considering the market's vicious reaction to the company's disappointing report the prior quarter.

The company's stock gained 11% in post-market trading after reporting international subscriber growth above Wall Street expectations and earnings per share that blew past forecasts. Shares then spiked as much as 8% during regular trading on Thursday.

The results appeared to reassure investors that, despite the oncoming slate of streaming competition from Disney and Apple, Netflix will still be able to grew its business overseas to fuel earnings growth. The international strength also seemed to offset concerns of US subscriber churn following recent price increases for Netflix's domestic offerings.

While investors rewarded Netflix's results, some major Wall Street analysts are striking a more cautious tone on the company's prospects over the next twelve months.

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Several of the analysts below reiterated their bullish long-term outlooks for Netflix, but also highlighted upcoming challenges such as intensifying competition chipping away at subscriber growth and the rising cost of content.

Here's what Wall Street analysts are saying about Netflix's third-quarter results.

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RBC: "We come away less bullish on Global Subs Adds."

RBC: "We come away less bullish on Global Subs Adds."

Price target: Cut to $420, from $450

Rating: Outperform

"At the margin, we come away less bullish on Global Subs Adds, slightly more confident on the margin outlook, and slightly less positive on NFLX's pricing power," Mark Mahaney, an analyst at RBC Capital Markets said in a note to clients on Thursday.

He added: "We would caution around a Q4 trading headwind re: Disney+ and Apple TV+ launch."

Rosenblatt: "Coming out of the quarter we feel worse about subscriber growth."

Rosenblatt: "Coming out of the quarter we feel worse about subscriber growth."

Price target: $265

Rating: Neutral

"We believe this early positive reaction is inconsistent with the fundamentals reported and guided to in 3Q earnings," Rosenblatt analyst Bernie McTernan said in a note to clients on Thursday.

He continued: "Coming out of the quarter we feel worse about subscriber growth given the 4Q19 guide for global subscriber net adds was below our lower than consensus forecast (+7.6M guide vs +8.6M RBLT and +9.5M consensus)."

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Wedbush: "The company faces a steep uphill climb to replace the content it is slated to lose over the next two years."

Wedbush: "The company faces a steep uphill climb to replace the content it is slated to lose over the next two years."

Price target: $188

Rating: Underperform

"The company faces a steep uphill climb to replace the content it is slated to lose over the next two years," Wedbush analyst Michael Pachter wrote in a note to clients on Friday.

Patcher added: "We estimate that by the end of 2021 Netflix will have virtually no content from Disney, Fox, Warner Bros. or NBCUniversal, and we think its efforts to replace that content with originals will only partially succeed."

Guggenheim: "We do expect investors to remain cautious due to the overhang from competition."

Guggenheim: "We do expect investors to remain cautious due to the overhang from competition."

Price target: Lowered to $400, from $420

Rating: Buy

"We are confident in the subscriber and economic growth potential of the business over the long term; however, we do expect investors to remain cautious due to the overhang from competition," Michael Morris, an analyst at Guggenheim, said in a note to clients on Thursday.

Morris continued: "We are lowering our 12-month price target to $400 from our prior $420 based on higher operating expenses and slightly lower subscriber additions."

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Needham: "We retain our HOLD rating because there are three battles that NFLX cannot win."

Needham: "We retain our HOLD rating because there are three battles that NFLX cannot win."

Price target: N/A

Rating: Hold

"We retain our HOLD rating because there are three battles that NFLX cannot win (our view): a) Price Wars; b) falling LTV/CAC; and c) US Saturation." Needham analyst Laura Martin wrote in a note to clients on Thursday.

Martin added:"We believe NFLX will spend more on content and marketing after Disney+ and Apple+ enter the market. As NFLX's debt rises, its equity value must decline to maintain a specific valuation multiple."