were largely still bullish on the company, but said the results may mark the start of a new era for Netflix.Bernie McTernan, senior research analyst at Rosenblatt Securities, said the most important piece of Netflix's report was its guidance that it would see 2.5 million net subscriber additions in the third quarter versus the 5.27 million analysts are expecting:
"That's why the stock's selling off despite the beat on 1Q. What's interesting as well is [the] operating margin guide, 16% for '20. They have a new guide now for '21, which they didn't have before, of 19%. That's roughly in line with consensus. And then also, on free cash flow, they expect this year to be break-even to slightly positive versusbefore. So, almost a flip here. Normally, you have bulls focused on subscriber growth.
"I think the sub numbers for the quarter were very good, very solid, but those numbers had been inching higher … all throughout the quarter. As I mentioned, Netflix app was downloaded 75 million times in the quarter. I mean, that is a huge, huge number. I also think the fact that production is going to restart … means your cash-burn rate goes up. And then on top of that, [the company is] talking about competition. So, to me, down 10% [is] not enough for me to buy it.
"Once production gets up and running, if they have some stellar new adds to the platform, I do think that … whether it's that work-from-home or study-from-home, people will have some hybrid situation that leaves them inside of the house looking for content. So, if they really have stellar content and crush Apple TV, Amazon Prime, all of the different — Peacock — applications out there and programming out there, then I think they have a shot to really pick up in price again.
"I also have been cautious on this as the stock has added, even with the pullback, $70 billion in market cap this year. And so, I've been wrong on this. I do believe that we are crossing over a point with this guidance that the big takeaway is that, essentially, we need to start to fast-forward and think about 2021 growth. And … they've been pulling forward sub adds.
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