We're now a week away from a telltale quarterly report by Netflix (NFLX -1.78%), and analysts are treating the global premium-streaming leader as if it has the cooties. Monness Crespi Hardt analyst Brian White slashed his price target from $440 to $340 on Wednesday morning, but at least he's still bullish on the investment and the revised price goal is still more than 25% ahead of where the shares are now. The same can't be said about Rosenblatt's Bernie McTernan, who has a neutral rating on Netflix. He is lowering his price goal from $330 to $265, a mark that's just below where Netflix closed on Tuesday.
They won't be the last of the Wall Street pros tweaking their forecasts lower in the coming days. The stock's descent in recent months is dictating a cautious approach, and it seems as if the negative catalysts have surrounded Netflix to the point where only Sandra Bullock in a blindfold isn't seeing the traps all around. Yes, I'm 10 months late with a Bird Box reference, but sometimes it helps to dig into the past to see the kind of danger that Netflix is truly in right now.
A history of disruption
Netflix has a history of not going along with the Wall Street narrative -- only to get the last laugh. Its original model of delivering DVDs by mail was disruptive to the Blockbuster Videos of the world, but Netflix found a way to make it work profitably with a lean but tech-savvy fleet of distribution centers. The market wasn't impressed when Netflix decided to disrupt itself by offering streaming a dozen years ago, and Qwikster became a national punchline four years later when Netflix moved to start charging for streaming as a stand-alone service.
Critics took Netflix to task for investing in original programming, not offering an ad-supported platform like Hulu, and how vulnerable it would be with Prime Video available at no additional cost to loyalty members of the world's largest online retailer. Netflix overcame all of these obstacles. There's always a threat, but Netflix finds a way to bounce back as one of the hottest consumer discretionary stocks over the past decade. Do you think that now is when this House of Cards -- an even older Netflix original reference -- will come crashing down?
Netflix always has an ace up its sleeve. If Netflix will fall short next week -- and there's a fair chance that it may, at least on its ambitious subscriber forecast front -- do you think that it will just take its first back-to-back guidance miss in stride? If investors will no longer trust its crystal ball heading into the fourth quarter, do you really think it will be business as usual at Netflix?
Cutting prices on its monthly subscription plans would send a message of margin-gnawing desperation, but that's not the only lever at its disposal. Netflix can follow its rivals by offering multi-year plans at a discount for pre-paying customers to lock them up. It can introduce an ad-subsidized tier. Netflix can join Prime Video and others by offering piecemeal digital rentals of stuff not in its content library.
Netflix hasn't grown its global paying audience to close to 160 million by now without realizing that there are a lot of new revenue streams to cash in on if its flagship business is under siege. Netflix has played this game before. It's a disruptor that isn't afraid to disrupt itself.