Netflix Stock Hit After Margin Forecast Offsets Blowout Second Quarter

July 18 – Netflix (NASDAQ:NFLX) slipped around 2% in early trading Friday after posting record second-quarter revenue and raising its full-year guidance, as concerns over shrinking margins tempered investor enthusiasm.

The streaming giant reported revenue of $11.08 billion and earnings of $7.19 per share, both narrowly beating Wall Street estimates. It now expects full-year revenue to reach up to $45.2 billion, reflecting continued subscriber and pricing strength.

Looking ahead, Netflix guided Q3 revenue to $11.5 billion and earnings of $6.87 per share, exceeding consensus. But the company cautioned that margins would tighten in the second half due to rising content amortization and marketing spend, expenses it said are necessary to maintain momentum in an increasingly competitive landscape.

The stock has surged more than 100% over the past year, raising the bar for quarterly results. Despite the solid beat, investors appeared underwhelmed by the lack of a breakout catalyst.

Although Netflix will continue generating solid results in the streaming marketplace, the new update will mean a more challenging juggling of growth investment and profitability as the company puts its stamp ever more firmly on both original content and international markets.

Based on the one year price targets offered by 42 analysts, the average target price for Netflix Inc is $1255.78 with a high estimate of $1600.00 and a low estimate of $726.11. The average target implies a downside of -1.44% from the current price of $1274.17.

Based on GuruFocus estimates, the estimated GF Value for Netflix Inc in one year is $683.49, suggesting a downside of -46.36% from the current price of $1274.17. Gf value is Gurufocus’ estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business’ performance. For deeper insights, visit the forecast page.

This article first appeared on GuruFocus.