Why Netflix stock flopped again today

The company is hit with a tidal wave of analyst downgrades and price target cuts as investors continue to bail.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

One day after experiencing one of the worst trading sessions in its history, Netflix (NASDAQ: NFLX) stock took another fall on Thursday.

At least this one wasn't as bad; the streaming video bellwether's shares closed "only" 3.5% lower. Some of this can be attributed to lingering pessimism following the company's ugly first-quarter results, but it was also due to a top investor bailing on the stock, and a raft of analyst price-target cuts and downgrades.

So what

Like the ending of a mediocre film, we could have guessed the reaction of many analysts to Netflix's first-quarter earnings report (in which it shockingly revealed a 200,000-count loss in streaming clients, with far more departures anticipated to come). The price target cuts and recommendation downgrades came thick and fast, even from longtime bulls.

As of late Thursday afternoon, among the platoon of recommendation choppers were JPMorgan Chase, Stifel, Oppenheimer, and Edward Jones. The Netflix analysts at all these companies changed their views on the stock to the equivalent of neutral from their former buy.

There were outliers, but they were very far and precious few between. One was Needham's Laura Martin, who went in the opposite direction. She lifted her recommendation on the fallen streaming king to hold (neutral) from the preceding underperform (sell).

Martin thinks a new company strategy could be one fix for what ails it. In a research note, she pointed out that "for the first time, the CEO stated [Netflix] will introduce a low-priced [advertising-supported] tier over the next 18-36 months."

Now what

The occasional positive adjustment isn't keeping people from selling out of the stock. One prominent seller was Pershing Square's Bill Ackman. On Thursday, it was reported that the high-profile hedge fund manager completely vacated his stake in Netflix, booking a queasy $400 million or so loss as he did so. According to media reports, Ackman had purchased around 3.1 million shares earlier this year. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Eric Volkman has no position in any of the stocks mentioned. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Netflix. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 

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