Netflix (NASDAQ:NFLX) shares have been rocked hard in recent months, but it wasn't until this week that the stock officially went underwater for the first time in 2019. The stock closed below last year's final trade of $267.77 on Monday, and the pessimism continues into the week.
The shares were moving lower for the fifth consecutive trading day on Tuesday, after Pivotal Research analyst Jeffrey Wlodarczak slashed his price target on Netflix stock from a Street-high of $515 to a pedestrian $350. It's the latest setback for what has been one of the hottest stocks over the past decade. It's also odd to see Netflix take a breather in an odd-numbered year.
Let's get even
Netflix stock has been one of the market's top stocks in odd-numbered years, taking a relative breather the following even-numbered year. It's a small sample size, sure, but some investors have been watching Netflix's performance closely after the stock became the S&P 500's biggest gainer in 2013 and then repeated the feat in 2015.
- 2013: 298%
- 2014: (7%)
- 2015: 134%
- 2016: 8%
- 2017: 55%
- 2018: 39%
- 2019: (5%)
The reasons for the slide in recent months are pretty clear. When Netflix fell well short of the 5 million net subscribers it was expecting to add worldwide in the second quarter -- its biggest miss off its own guidance -- investors began to fear that Netflix flew too close to the sun with this year's springtime price hike. When services set to launch later this year announced aggressively low price points, with head-turning content to boot, it became clear that Netflix won't have the same pricing flexibility that it has had in the past.
Things don't have to end badly for Netflix and its shareholders. Netflix remains the undisputed top player in premium streaming, and analysts are already discounting a guidance miss for the current quarter. How can Netflix add another 7 million more subscribers to its total for the three months ending next week with a flurry of low-priced activity from rivals swirling about? If it finds a way to come close to its mid-July projection, it will be a cause for celebration -- and upticks. If Netflix finds a way to grow its stateside audience in the fourth quarter, when its two biggest challengers launch ahead of the telltale holiday season, it will be another victory.
Even Wlodarczak at Pivotal is sticking to his bullish rating on the stock. He believes that rivals ramping up their promotional budgets will hurt traditional pay TV more than it will Netflix, and the migration to streaming will benefit all of the premium online services. He sees Netflix shifting to invest aggressively in content, spending as much as $35 billion in 2025 alone to set itself apart from the competition. His new price target of $350 is a lot lower than his previous goal of $515, but it's still more than 30% ahead of where the stock is right now.
But it won't take much for the pessimism to transition to cautious optimism. Netflix isn't going to keep its streak of monster gains in odd-numbered years going, but that doesn't mean that shareholders won't get even in the coming months.