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Wedbush analyst on Morgan Stanley's Netflix stock call: It's 'idiotic'

Brian Sozzi
Editor-at-Large

Netflix’s post-earnings stock crash has one Wall Street veteran calling out a peer with a wildly different take.

The share price of the streaming giant plunged more than 11% on Thursday as it whiffed on several key metrics for the second quarter amid heightened competition and a recent round of price increases.

Total streaming paid net additions came in at 2.7 million, well below the 5.06 million analysts expected. Netflix ( NFLX ) surprisingly lost 126,000 domestic paid subscribers in the quarter versus the 309,000 gain anticipated. International paid subscriber gains also came up short, by about two million compared to analyst forecasts.

While Netflix CEO Reed Hastings tried to assure investors on a conference call that the quarter was a mere blip ahead of strong demand for a host of new original content, long-time tech analyst Michael Pachter is having none of it. The veteran analyst reiterated his underperform rating and $188 price target on Netflix’s stock. As of this writing, Netflix’s stock was trading at $321.

Pachter repeated his concerns over Netflix’s aggressive spending to develop owned content and how that is hurting cash-flow generation. Netflix’s valuation is unwarranted, Pachter believes, even after the nosedive following the quarterly results.

And he thinks one of his industry peers needs to buy a clue.

“I think that the Morgan Stanley analyst is a super good guy and generally very good on stocks, but he is horrific on this one [Netflix],” Pachter said on Yahoo Finance’s “ The First Trade .” “He has got some BS estimate that these guys [Netflix] are going to be generating ridiculous amounts of operating profits and cash flow in 10 years. I love his crystal ball 10 years out – he has them at 300 million subscribers, doubling their subscriber base, raising prices while they are doubling their subscriber base in the face of more competition and less content.” Netflix now has about 152 million subscribers.

Pachter added, “I don’t know how to brand this as anything other than just idiotic. I think he is making stuff up as he goes.”

Ouch.

A Morgan Stanley spokesperson declined to comment to Yahoo Finance on Pachter’s views.

That analyst Pachter references is Benjamin Swinburne — and he is staying supremely upbeat on Netflix the day after a weak-ish quarter. Swinburne reiterated his outperform rating and $450 price target on Netflix today. In Swinburne’s eyes, Netflix remains a force to be reckoned with longer term.

“[The] world did not change in last three months, and 2019 will be another year of record net adds and double-digit average revenue per user growth,” Swinburne wrote in a note to clients.

Pachter should be on the lookout for an email from Swinburne today, let’s just leave it at that.

Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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