Analysts cut price targets after Netflix warns of competition headwinds, fueling concerns over U.S. subscriber growth

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Shares Of Netflix Inc. rallied Thursday as investors lived up to earnings and subscriber beats, but a number of wall street analysts took a more negative view after the streaming video giant warned that growing competition could bite into future results.

The big issue on wall street was subscribers, so investors cheered that Netflix reported net revenue 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.

While many analysts say the results and prospects for competition were not as bad as feared – with Macquarie Research’s Tim Nollen saying the company had “thrown the naysayers” – only very few thought they were good enough to improve the stock’s Outlook.

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Of the 20 analysts surveyed by FactSet who revised their share price targets, 17 cut them, and one even cut its rating. The average analyst rating remained at overweight, but the average price fell to $372.20 from $393.26 as of September 30.

It was Nollen Macquarie who downgraded Netflix to neutral, after being on the beat for nearly two years. It also cut its target price by 13% to $325 from $375.

“We expect competition from Disney and others, especially in the U.S., will have only a modest impact on churn, but we believe it will be difficult for Netflix to grow much more in the U.S. and we suspect pricing power is limited,” Nollen wrote in a note to clients. “Maintenance costs continue to rise and marketing requirements remain high and the turnaround to positive (free cash flow) will take many years, while another debt increase is expected.”

Bank of America Merrill Lynch’s Nat Schindler remained one of the more bullish analysts, saying the bears ‘ worst fears were allayed. But he nonetheless cut his target price to $ 426 from $ 450, citing “low cadence” for the us subscriber adds and “add conservatism” as rising competition makes subscriber growth harder.

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

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

Wlodarczak believes Netflix shares are being set up to “climb the wall of concern” around the disney launch, which he believes will “complement” Netflix as it is likely to help accelerate the decline of traditional pay-TV services.

Meanwhile, analyst Brian white at Monness, Crespi, Hardt

“The paralyzing fear that gripped wall street’s headline call last night was unprecedented; however, Netflix’s performance was good enough to stabilize the stock,” white wrote.

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