(Reuters) - Wall Street brokerages stuck to a positive outlook on Netflix Inc (NASDAQ:NFLX) (O:NFLX) on Thursday, betting that a strong content slate for the rest of 2019 would reverse shock losses in U.S. subscribers in the second quarter that sank its stock price.
Shares in the company fell 11% in morning trade, as investors worried over an earnings report that showed lower-than-expected global growth and signs of trouble in its U.S. base ahead of the much-awaited launch of Walt Disney (NYSE:DIS) Co's (N:DIS) new rival service later this year.
The company, which on a price-to-earnings basis is by far the most highly valued of the FAANG group of big U.S. tech companies, has quadrupled in value since 2015 but at $321 per share is now down $100 from last year's peaks.
The April to June period tends to be seasonally weak for Netflix in the United States, where warmer weather and longer days keep people outdoors and away from their screens.
Brokers Cowen & Co calculated Netflix had missed expectations for second-quarter subscriber numbers three times in the last four years.
This year, however, the Los Gatos, California-based company added a batch of aggressive price hikes to the mix and the outright fall in U.S. subscribers was the first in eight years.
"They raised prices in the U.S. by an average of $2 per month, and most subscribers learned about their increase during Q2," said Wedbush Securities analyst Michael Pachter.
"I think that was a much bigger driver of churn than a dearth of content."
STILL A BUY
Ten Wall Street brokerages cut their share price targets to reflect Thursday's fall, but there were no cuts to their ratings on the stock, still seen by a majority of Wall Street firms as a high-potential growth business and a clear "buy".
While competition is set to heat up with the upcoming launches of Apple Inc (NASDAQ:AAPL)'s (O:AAPL) Apple TV and Disney+, several analysts said Netflix's global reach is likely to give it an edge.
Netflix added just 2.83 million international paid streaming subscribers, compared with Street expectations of 4.8 million, but it now has 151.6 million worldwide, dwarfing its nearest rivals Amazon (NASDAQ:AMZN) (NASDAQ:AMZN) Prime and HBO.
"By 2025, based on Disney projections, it looks like Netflix will be spending at least five times as much on content as Disney+," said Pivotal Research Group analyst Jeff Wlodarczak.
"I also think Disney+ is likely to help accelerate consumers away from traditional Pay TV toward OTT (content over an internet connection) which should benefit Netflix."
The company raised prices in Britain, Switzerland, Greece and Western Europe in the quarter, testing the waters in some of its wealthiest markets at a time when it is still spending massively more than it earns to win the content battle.
The company began the third quarter with the release of its 1980s-set smash-hit "Stranger Things" and will follow it with new seasons of "Orange is the New Black," and "The Crown" as well as hotly-awaited Martin Scorsese movie "The Irishman".
"We would note Netflix misses have been followed by strong quarters, and, along those lines, we expect Netflix's very strong 2H slate will lead to a rebound in sub growth," Credit Suisse (SIX:CSGN) (SIX:CSGN) analysts wrote in a client note.
The junk bonds the firm uses to fund its $12.5 billion debt burden fell in value on Thursday. Yields on its Feb 2021 bond rose 16 basis points to 3.34%, according to Refinitiv data, still far off a peak of around 5.1% hit in January when the stock market was falling broadly.