Wells Fargo Analyst Says Netflix's Pain Is Over

Tuesday was nerve-wracking, not just for Netflix, which released its second-quarter results, but truly for anyone in Hollywood tied to a subscription streaming service. Luckily, a loss of just 970,000 subscribers (that's less than a million!) wasn't as bad as Wall Street expected and it was half of what Netflix gave it. -even had predicted in April. In this context, a major loss has become a major victory.

As Netflix founder and co-CEO Reed Hastings acknowledged during Netflix's second quarter earnings call, "Hard in some ways to lose a million and call it a success. ."

Wells Fargo media analysts think Netflix "has found a bottom." That means there's nowhere to go but on the rise - especially with ad-supported level and password-sharing crackdowns on the horizon. (These programs will roll out nationwide in 2023, but their financial impact is unlikely to materialize until at least 2024.)

“While it is too early to visualize the longer-term financial condition of the business, which keeps us happier on the sidelines, we believe the recent pain is over,” wrote the Wells Fargo senior analyst Steven Cahall in a note distributed to clients — and obtained by IndieWire — on Wednesday.

Netflix's most acute pain is its declining subscribers (starting with a loss of 200,000 subscribers in the first quarter, its first decline in a decade) and falling stock prices. Luckily, both of these events can now be completed. Netflix expects to add 1 million subscribers in the third quarter. While this is lower than they previously thought and at a slower pace than previous years, it would almost bring the base back to FY2021 levels.

As for the company's share price, it's going to take a lot longer to settle. It is also entirely possible, if not extremely likely, that NFLX shares will never trade near their November high of $700.99. On Tuesday, Netflix stock surpassed $200 per share for the first time since early June. The 52-week low is $162.71).

After reporting better-than-expected subscriber and revenue results (but no revenue), the stock price hit around $215. On Wednesday, it closed at $216.44, down 69% from fall 2021 highs. After the Q1 bombshell, Netflix stock fell from $348.61 per share to 226.19 $, literally overnight. The company has lost around $175 billion in market cap value since the end of 2021; currently, Netflix is ​​worth around $96 billion by this measure.

Chris Evans in the Netflix movie "The Gray Man".

Netflix

So, no more "pain", maybe, but will there be any gain? Cahall...