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The sell-off was sparked by what management described as a “strong but not stellar” second quarter where the company added 1 million fewer new subscribers than forecasted.
But this week, shares have begun to bounce back after a short correction. Every day this week, the stock has closed higher and is now trading 9% higher than the bottom reached on Monday.
Shares are still down 23% from the high reached on July 11. For most stocks, that kind of loss in roughly a month would be a huge red flag. But Netflix is still up nearly 77% so far this year and 100% in the last 12 months.
With back-to-back bullish analyst notes and momentum back on its side, investors are starting to forgive Netflix’s rough second quarter.
On Tuesday, William Blair analyst Ralph Schackart wrote a note that argued that the correction in the stock in the last month was overdone citing the fact that international growth during the second half of 2018 should be stronger than the lackluster 7% in net subscriber growth other analysts are targeting relative to the first half of the year.
Schackart also noted that the streaming giant has a history of bouncing back after rough quarters, something that Netflix CEO Reed Hastings also pointed out during the company’s Q2 earnings presentation.
“We’ve seen this movie of Q2 shortfall before, about two years ago in 2016, and we never did find the explanation to that, other than there is some bumpiness in the business, and continued to perform after that,” Hastings said.
The company has fallen short in just 4 of the past 22 quarters and every time has rocketed back the following quarters with big numbers.
On Wednesday, a second analyst piped in. Rob Sanderson at MKM Partners rated the stock a Buy and boosted his price target on the stock from $390 to $395 – 16.5% higher than today’s closing price.
Sanderson believes the sell-off this summer presents an opportunity in the stock, though he did note that subscriber growth in the near term could be a challenge. Projecting out to 2025, Sanderson sees Netflix earning $40 per share on 90 million domestic subscribers and 300 million subscribers internationally.
A lot would have to go right for Netflix to live up to Sanderson’s estimate, but the company has repeatedly defied the odds before.
With shares beginning to climb higher and two top analysts saying the stock is a Buy, it might be time to consider getting back in on Netflix especially considering that the rest of this year will see premieres for some of its biggest hit shows, including The Crown and Stranger Things, which is likely to spur subscriber growth.