uploads///Netflix Stock

Netflix Stock Can’t Grow until This Happens

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Aug. 29 2019, Published 8:02 a.m. ET

  • Netflix stock is down 19.5% since the company announced its second-quarter results.
  • Robust user growth could overshadow concerns and boost the stock.
  • Wall Street sees huge upside for Netflix stock.

Netflix (NFLX) stock is under pressure and has fallen 19.5% since the company posted its second-quarter results on July 17. The streaming giant is up against multiple headwinds. High debt, rising content costs, negative cash flow, and the threat from new entrants threaten the company’s first-mover advantage.

But do these headwinds matter to Wall Street? Probably not. If there’s one thing Wall Street loves about Netflix, it’s the company’s astounding paid subscriber growth. However, that didn’t happen in the second quarter, putting Netflix stock under pressure.

During the second quarter, Netflix’s US paid subscriber count fell for the first time. Moreover, it added fewer subscribers globally than it had forecast. Netflix’s global paid subscribers increased by 2.7 million in the second quarter, well below its projection of 5 million.

If Netflix’s paid user base grows significantly in the third quarter, all concerns could be overshadowed. Investors should also focus on the company’s fourth-quarter subscriber growth guidance, as Disney and Apple are set to launch their Disney+ and Apple TV+ services in November.

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Is Netflix aiming high?

Netflix expects to add 7 million paid subscriber additions in the third quarter, and achieving that target could boost its stock. However, reaching that figure would be no small feat, as it implies about 159% sequential growth and 15% year-over-year growth. Netflix is banking on its content slate to achieve its outlook.

However, investors should wait and see, as Netflix likely has a bumpy ride ahead. Higher pricing and competition could affect Netflix’s subscriber growth.

Analysts see huge upside for Netflix stock

Netflix stock could get out of its recent slump if the company’s subscriber growth concerns are addressed in the third quarter. Analysts’ average price target of $388.40 for Netflix stock implies a huge upside of about 33% based on its August 28 closing price of $291.77. Of the 44 analysts covering NFLX, 30 suggest “buy,” ten suggest “hold,” and four suggest “sell.”

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