Netflix ‘s subscriber turnaround in the third quarter signaled to many that the streaming giant’s troubles are behind it. But some analysts warn the company isn’t out of the woods just yet and the stock is entering a defining period. The streaming giant on Tuesday reported subscriber growth of roughly 2.4 million, topping expectations set by analysts, after back-to-back quarters of subscriber losses. This led to Netflix also posting better-than-expected earnings and revenue for the quarter . Several analysts, along with investors, cheered the results. Netflix shares rallied more than 13% in the premarket. ‘The dark days are over’ JPMorgan analyst Doug Anmuth upgraded the stock to overweight from neutral, saying that he sees the company’s crackdown on password sharing and new advertising initiatives as tools to help the company accelerate revenue growth. He also upped the stock’s price target to $330 a share, representing a 37% upside from Tuesday’s close of $240.86. Wells Fargo’s Steven Cahall agreed with that sentiment, saying in a note to clients that it’s difficult to visualize a scenario where the company loses subscribers, believing downside risk is now limited for the stock going forward. “The dark days are over,” he wrote. “If there’s a unifying narrative for NFLX in 3Q22 it’s that the worst appears behind it.” Deutsche Bank analyst Bryan Kraft also upgraded Netflix to buy, noting that there’s now “visibility into a subscriber growth inflection point next year given that Netflix management has confirmed both the early 2023 introduction of its new measures designed to better monetize account sharing.” Wolfe Research’s Peter Supino raised his price target on the stock to $305 from $251, noting that management’s commentary has boosted his confidence that Netflix can add subscribers from its ad-based initiative. “Netflix’s 3Q results demonstrated that its subscriber growth engine still works, and that the 1H’22 breakdown related mostly to price increases and post-lockdown normalizations which have largely run their courses,” he said. Netflix has come under pressure in 2022 after reporting its first subscriber loss in more than a decade earlier this year. The stock is down 60% this year and about 66% off its 52-week high. To be sure, Netflix shares have bounced back slightly in recent weeks, gaining more than 2.3% in October alone. That said, Morgan Stanley’s Benjamin Swinburne wrote in a note to clients that the stock is overstating Netflix’s outlook ahead. “We believe shares are pricing in a level of success that is reasonable but not conservative and that the headwinds to growth that have weighed on the business recently remain – product maturation, competition, and macro headwinds,” he said. And while the latest quarterly report indicates Netflix is “entering a critical narrative defining period,” Barclays’ Kannan Venkateshwar said more data is needed to decipher whether Netflix is headed in the right direction. “The quarter should alleviate some of the worst case scenarios but further upside realization may need more concrete data points on advertising and success in password sharing clampdown,” Venkateshwar wrote in a note to clients. Other analysts also noted that the streaming landscape remains competitive going forward as consumer spending heads for a potential slowdown and pandemic-related tailwinds ease. “We still reiterate our Sell rating on Netflix as we see the risk/reward more negatively skewed from current levels given the recent stock performance when measured against the execution pathway ahead,” warned Goldman Sachs’ Eric Sheridan in a note to clients. Goldman did raise its price target on the stock to $200 from $182 a share, which suggests a 17% downside for the stock from Tuesday’s close. Credit Suisse’s Douglas Mitchelson expects the new ad tier and sharing efforts to benefit revenue. But without a boost in the pace of streaming growth, he sees difficulty for Netflix to surpass 10% growth in the foreseeable future. — CNBC’s Michael Bloom contributed reporting
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