Mark Mahaney is bullish on Netflix stock despite disappointing outlook

Shares of Netflix Inc (NASDAQ: NFLX) tanked first but then recovered fully in extended hours even though the streaming giant issued disappointing guidance for its current quarter.

Here’s what Netflix expects for Q2

The mass media company now forecasts a 3.4% annualised growth in its Q2 revenue to $8.24 billion on $2.84 of per-share earnings. In comparison, analysts were at $8.5 billion and $3.07 a share, respectively.

Currency headwinds, it added, will also result in a 100 basis points hit to operating margin this quarter. But none of that was enough to make Mark Mahaney (Evercore ISI) any less bullish on the Netflix stock.

Year-to-date, Netflix stock is up 13% at writing.

Mahaney says subs guidance is bullish

In its first financial quarter, Netflix added 1.75 million net new subscribers versus about 2.25 million expected.

Making it worse was its outlook for Q2. The Nasdaq-listed firm expects paid net adds to remain sequentially flat – well below the consensus forecast of 3.7 million. But on CNBC’s “Closing Bell: Overtime”, Mahaney noted:

Netflix confirmed today that it will launch “paid sharing” in the United States this quarter.

Is Netflix stock worth buying?

On the plus side, Netflix now sees at least $3.5 billion in free cash flow this year, as per the earnings press release. Its previous guidance was for $3.0 billion only. Discussing paid sharing and a cheaper ad-supported tier further, Evercore’s Mahaney added:

His “outperform” rating on Netflix stock is coupled with a $400 price target that suggests about a 20% upside from here.

Notable figures in Netflix Q1 earnings report

• Earned $1.31 billion versus the year-ago $1.60 billion
• Per-share earnings also tanked from $3.53 to $2.88
• Revenue went up 3.7% year-on-year to $8.16 billion
• Consensus was $2.86 a share on $8.18 billion revenue
• Spent $400 million to repurchase 1.2 million shares