NEW YORK: Blindsided by a surprise drop in new subscribers to Netflix Inc, analysts slashed their price targets on the video-streaming company as it shed a fifth of its value on Thursday.
Their advice came too late for investors who had followed the recent "buy" guidance of at least 20 brokerages - not least BTIG Research, which upgraded the stock just two days before Netflix reported third-quarter results.
BTIG set a one-year price target of $600 on a stock that was trading on Thursday afternoon at $362.45, down 19 percent. It said its Oct. 13 upgrade "could not have been more poorly timed in hindsight."
But, like many others, BTIG is betting on the long-term results of an expensive push by Netflix into original content and more international markets. The title of its Thursday note: "Roger Roger: Why Selling Netflix Now Is A Mistake."
Netflix, with original shows that include "House of Cards" and "Orange is the New Black", plans to spend $8.9 billion on acquiring new content in the next few years.
With more than a quarter of its 53 million customers now outside the United States, the company is also looking to expand its international business to reach new viewers and increase its buying clout with content providers.
BTIG is far from alone in forecasting growth for a company that is financing four Adam Sandler movies and making the sequel to martial-arts drama "Crouching Tiger, Hidden Dragon."
In a little over a month, Barclays, RBC and Cowen & Co have each raised their price targets. Canaccord Genuity began coverage in September with a "buy" rating and $550 price target.
But that was before Netflix announced 3.02 million new streaming customers in the quarter ended September, well below its own forecast of 3.69 million.
In a market where Netflix is a pioneer, competition is also emerging.
CBS Corp announced plans to launch subscription-based video on demand and live streaming for its TV network just a day after Time Warner Inc said its HBO channel would launch an online streaming service next year.
'COMPETITION RAMPS UP'
Netflix trades at about 76 times forward earnings and scores just 5 out of 100 on Thomson Reuters StarMine Relative Valuation model. The lower the score, the more expensive the stock.
Wedbush Securities Inc is one of the few brokerages with an "underperform" rating on Netflix, calling its high valuation "unwarranted given the potential for slowing domestic growth as competition ramps up, coupled with increasing content costs."
At least 19 notes sent by brokerages on Thursday featured a target price cut. In the case of SunTrust Robinson Humphrey, the cut was as much as $150; to $375 from $525.
CRT Research cut more than its price target; it downgraded the stock to "fair value" from "buy".
"As the company invests heavily in content and expansion, and faces increased competition in 2015, we don't see too many near-term catalysts for the stock," CRT said. "As a result, we are stepping to the side."
Netflix has attributed the subscriber numbers to a jump in monthly subscription fees for new U.S. customers. CEO Reed Hastings, in an interview with CNBC, said Netflix had "estimated too high" for the quarter just ended. (http://cnb.cx/1xVfEMN)
Despite hefty price cuts, many brokerages maintained their outlook on the stock. Jefferies & Co raised its rating to "hold" from "underperform."
Much will depend on how patient investors are willing to be.
"We expect new international markets will become profitable eventually like earlier markets have," Bank of America Merrill Lynch analysts wrote, "but this will require time and patience that some investors may not have."- Reuters
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