Shares of Netflix (NASDAQ:NFLX) have been clawing their way back since getting obliterated after the company posted problematic quarterly results last week. Investors have started to believe in the stock, and now another Wall Street pro is singing a bullish tune.
William Blair analyst Ralph Schackart is boosting his rating on the leading premium streaming service, going from "market perform" to "outperform." Schackart feels that the next few years will be favorable. His bullish scenario sees the stock worth $185 a share come 2020. His bearish scenario pits the shares at $110, still higher than where Netflix stock finds itself now.
Schackart's upgrade came just as the stock was closing at $95.18 yesterday. The analyst boost didn't result in much of an after-hours pop, but it probably won't take much of a rally to get the stock back into the triple digits. It would be a notable achievement that Netflix hasn't seen in some time.
Pulling up on the bar
Netflix began the year north of $100. It's not there now, and it can't seem to stay in the triple digits. It has climbed to above $100, only to fall back into a double-digit close six times so far this year. The last time this happened was in early June, and that's another way of saying that Netflix stock has closed in the double digits in each of the past 56 trading days.
The drought probably wouldn't have lasted this long if not for last month's abysmal financial results. Netflix fell short of its earlier subscriber guidance, a big no-no for a company that has historically offered up softball guidance that it can hit out of the park with ease. It wasn't even close. The 1.68 million net additions it scored during the three months ending in June were woefully short of the 2.5 million that it was originally forecasting.
The 2.3 million net additions it targeted for the current quarter was another storm cloud in the report. It had closed out the prior year's third quarter with 3.62 million streaming subscribers than it had when the period began. The one-two punch of missing guidance and offering up an equally disappointing outlook for the current quarter sent the stock plummeting. It fell from $98.81 to $85.85, off 13% in a day.
So, yes, it's not a stretch to say that Netflix stock probably would've been back in the triple digits if not for last month's nasty financial report.
Climbing back up for keeps
There's no shortage of potential catalysts to get the stock back above $100. If the rate hike that's been kicking in this month for many of the longtime subscribers who were grandfathered in at the original $7.99-a-month price in 2014 results in a healthy spike in average revenue per user, the market may decide to overlook the slowing subscriber growth.
Netflix can also score more compelling content, though it's been some time since the stock moved just on the acquisition of proprietary programming. We also can't dismiss buyout speculation. It creeps in from time to time as tech giants and media conglomerates realize that it's easier to own Netflix than to compete against it.
Netflix has plenty of paths to get to the promised land again. Market momentum is helping, but even that will take you only so far. Netflix will have to earn the hurdle that it can't seem to cross on a permanent basis.