Netflix, Inc. (NASDAQ:NFLX) Drop After Earnings is Actually Good For Investors

Netflix, Inc. (NASDAQ:NFLX)

Netflix, Inc. is seeing troubles, and its impact can be seen on its shares that got slammed on Tuesday. But, smart money seems interested in trading the shares of the streaming media firm. The situation at Netflix is not that bad, believe analysts, who suggest the drop of 10% in the share price since Friday’s close may be the latest of many post-earnings buying opportunities.

Netflix, Inc. (NASDAQ:NFLX)

Icahn made billions in same situation

It might be difficult for people to believe what Wall Street analyst are saying, but they should recall that Carl Icahn, who made billions by trading Netflix shares after mass hysteria.

Icahn took the risk of playing the Netflix trade, and was rewarded with fortune worth an estimated $2bn. He bought the shares at $58 low (pre-stock split) after Netflix decided to go international, and sacrifice profits for global expansion. This resulted in a major pullback in the share price. Last year, Icahn sold the remaining of his shares.

After Monday’s close, Netflix, Inc. reported a profit of $27.7m in the Q1, thus, beating analysts’ projections. This yielded an EPS of 6 cents a share. Netflix’s sales went up by 24% to $1.96bn, missing the forecast of $1.97bn by a small margin. Netflix lowered its Q2 guidance for new-customer signups outside the US, and this attracted a lot of market’s attention. The market was expecting it to add 3.4m new non-U.S. customers in Q2, but Netflix told investors to keep their expectations at about 2m.

Netflix has been here before

Wall Street analysts are telling the clients that such a situation have been seen in the past as well, and the challenges of forecasting the growth in Netflix’s business have always helped the shares to boom and bust.

In a blog post, BTIG Research analyst – Rich Greenfield – wrote, “While many investors may consider bailing on the Netflix story today (which reminds us of the investor narrative in October 2014, as the stock was plunging following [third-quarter]), we continue to believe Netflix is on track to pass 100 million subscribers globally in early 2017 and reach 150 million subscribers globally by the end of 2020. If anything, Netflix’s success in driving penetration in the most competitive media market in the world, the U.S., strengthens our confidence in their ability to execute globally.”

The 21% drop that the firm saw in 2014 is not the only one. After it released its earnings for the Q2 2010, it saw a drop of 23%. Also, the stock was hit hard when the market feared about junk bonds and China’s slow down fears, with shares losing more than 33% of their value.

Growth potential ahead

RBC Capital analyst – Mark Mahaney – notes that Netflix’s business has made a steady progress and will continue to do so. The analyst expects the shares to double by 2019, and has set a 12-month price target of $140. Mahaney admitted some fundamental negatives, but believe those are more likely “timing-related.”

“We continue to believe that Netflix’s value proposition has universal appeal — as demonstrated by its success in North America, Latin America and Western Europe,” the analyst said.

During a video interview on Monday evening, Netflix, Inc. CEO Reed Hastings revealed the rate at which Netflix is expanding in Asia is slower than the forecast, probably because all its content is in English and its payment systems are based on international credit card systems.

Mahaney agrees with Hastings, who said, “In most of those countries, we’ve yet to see our full potential,” Hastings said. “We’re only in English, and only with international credit cards. Over the next couple of years, we’ll see more opportunity.”

At 11.00 am EDT, Netflix shares were up 2.02% at $96.27. Year to date, the stock is down over 18%.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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