Netflix sells off on weak Q2, guidance, Wall Street defends for 'patient' investors
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Netflix (NASDAQ:NFLX) shares slumped more than 6% in pre-market trading on Thursday after the company reported weaker-than-expected quarterly results and guidance, but several Wall Street analysts defended the streaming giant.
Wells Fargo analyst Steve Cahall, who maintained his overweight rating and $500 price target on Netflix (NFLX), said it's likely that investors were "over exuberant" on the company's paid sharing initiatives and revenue growth will take time. The dip creates an entry point for "patient, [long-term] investors" as price increases take effect. 
"Like COVID, in a prolonged Hollywood strike NFLX likely gains share of engagement," Cahall wrote in an investor note. "While ad reach is starting slow, NFLX will gain share in ads. Paid sharing means NFLX gains share of global streaming revs. We're happy to be patient on a share gainer."
Cahall added that Netflix (NFLX) likely has "a lot" of flexibility on its operating leverage in 2024 as the company boosted its free cash flow outlook for 2023, given the implications of the strikes.
"A pull-back gives investors found time for [long-term] thesis," Cahall added.
Barclays analyst Kannan Venkateshwar said Netflix's (NFLX) subscriber growth in the second-quarter was "impressive" but the weak guidance caused a bit of surprise for investors.
"Normal seasonality and lift in net adds the quarter after paid sharing rolled out in other countries would have implied potentially better trends in Q3," Venkateshwar wrote in an investor note. "This may be rationalized away by investors due to the sum of the two quarters still showing sub growth acceleration but it does highlight the unusual growth profile this year, which is likely to be tough to extrapolate."
Venkateshwar added that Netflix's (NFLX) story is now more about optimizing unit growth versus price and that paid sharing was supposed to be a boost in pricing at the risk of higher churn, but so far, pricing has weakened but subscriber growth has accelerated. 
Piper Sandler analyst Thomas Champion, who boosted his per-share price target to $440 from $350, said the company is making progress on paid sharing and its advertising tier, but there are concerns about the revenue guidance. Champion reiterated his neutral rating.
Deutsche Bank analyst Bryan Kraft, who has a buy rating and per-share price target of $485, said paid sharing is "working" and the weakness in revenue and average revenue per user can be explained with four factors: additions were heavily weighted toward the end of the quarter; price reductions during the first-quarter negatively impacted ARPU in Asia Pacific countries, which will recur going forward; lower ancillary revenue in the U.S. and Canada; larger net additions in markets with lower average revenue per user than the company average.
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