Morgan Stanley Issues Blunt Call On Netflix Stock Post Earnings

Morgan Stanley backs Netflix stock after earnings, sees upside despite cautious guidance and investor concerns. Image Source: Kyle Grillot/Bloomberg via Getty Images

Key Points

• Netflix's Q1 results beat expectations, but weak guidance led to a price decline in the stock.

• Morgan Stanley dropped a sharp take on the stock post-earnings.

• Key risks include engagement uncertainty, high tech spending, and execution in second half of 2026.

Netflix released its Q1 2026 results on April 16, to a bearish response from Wall Street. Though it posted a relatively decent quarter, cautious guidance took the shine off the report, leading to a dip in its stock price.

Morgan Stanley analysts, however, didn’t flinch and remained unwaveringly bullish on the streaming giant’s stock. The bank’s analysts reiterated their Overweight rating on Netflix stock and maintained a price target of $115. Compared to Netflix’s $107.79 closing price on the report date, that price target implied a 6.7% upside.

For perspective, the stock has since pulled back sharply from its post-earnings level, and it has recently been seen trading just below $100.

Netflix’s near-term troubles are apparent in its lukewarm guidance, but Morgan Stanley seems to believe the long-term bull case is intact. Pricing power remains healthy, retention levels have improved, and advertising continues to scale, which lays the foundation for a compelling compounder.

Morgan Stanley bets that the post-earnings dip relates to the short-term a lot more than any break in Netflix’s compelling broader story.

Netflix Q1: Strong Quarter, Weak Outlook

According to Seeking Alpha, here are some highlights of the release:

• Netflix beat on sales, posting $12.25 billion, up 16% year-over-year, topping estimates of $12.17 billion.

• Operating income jumped 18% to $4.08 billion, above the $3.94 billion estimate, though 31.7% margin numbers missed the 32.5% forecast.

• Free cash flow skyrocketed to $5.1 billion from $2.7 billion a year earlier, beating the $2.87 billion expectations.

• The focus was on Netflix’s weak guidance, where the 2026 revenue midpoint of $51.2 billion missed estimates of $51.38 billion, while the 31.5% margin trailed the 32% forecast.

• Shares slipped after hours as Netflix also announced that Reed Hastings won’t seek re-election as chairman.

Morgan Stanley Says Netflix’s Post-Earnings Pullback Looks More Like a Timing Issue

Morgan Stanley believes Netflix’s post-earnings dip has everything to do with timing. Though Netflix posted a strong Q1 top-line beat, the bigger issue was its Q2 guidance, which fell short of consensus estimates. However, Morgan Stanley analysts argued that this is mostly about price increases flowing through the business instead of a demand issue.

Netflix’s U.S. price hikes will take two to three months to start showing up meaningfully in the numbers, so that the March bump might have a bigger impact in Q3 than the second. Moreover, it also created a tough comparison because the company is lapping last year’s big price hike. The rest of the numbers support that view.

Netflix reiterated its 2026 sales growth forecast of 12% to 14%, maintained its EBIT margin target at 31.5%, and also raised free cash flow guidance to $12.5 billion from $11 billion.

Wall Street Price Targets for Netflix Stock After Earnings

According to Seeking Alpha, Wall Street’s consensus price target for Netflix stock is $114.46, pointing to a 17.62% upside from recent levels. For perspective, analysts’ targets range from a low of $80 to a high of $151.40, underscoring a remarkably wide range for the stock’s outlook.

Price targets include the following:

• Oppenheimer: $120.

• Seaport Research: $119.

• JPMorgan: $118.

• Piper Sandler: $115.

• Morgan Stanley: $115.

• Barclays: $110.

Morgan Stanley Sees Plenty of Room Left for Netflix to Grow

On top of that, Morgan Stanley analysts believe Netflix has plenty of room to grow. It is expected to wrap up the year with over 325 million paying subscribers and an audience approaching 1 billion viewers.

Despite these impressive numbers, Morgan Stanley says that Netflix is still early in its efforts to entertain the world. The numbers back up their case.

Netflix has penetrated fewer than 45% of addressable smart-TV households, captured just 7% of its $670 billion addressable sales opportunity, and accounted for less 5% of global TV viewing.

Advertising is another major reason why Morgan Stanley remains bullish. The firm argues that Netflix remains on track for ad sales to double year-over-year in 2026 to a whopping $3 billion, representing about 6% of total sales, paving the way for 10%+ over time. 

The ad-supported tier accounts for over 60% of fresh sign-ups in the 12 countries where it’s offered, up over 50% recently, while its advertiser base has jumped past 4,000 clients, up about 70% year-over-year.

That power-packed combo of pricing power, ad strength, and a tremendous long-term growth runway is exactly why Morgan Stanley reiterated its $115 price target.

Key Netflix Risks to Watch

• The engagement debate isn’t settled: Questions about engagement and time spent remain, though Netflix saw an improvement in Q1 viewing hours and quality engagement, hitting a record. If things go south, the company’s pricing power and retention arguments become tougher to defend. 

• AI spending still needs to prove itself: The streaming giant is investing heavily in tech and development, including AI, advertising, and games. The risk is that its ballooning capex may outpace clear near-term returns.

• Execution matters in H2'26: The bull case leans on price hikes, ad growth, and stronger second-half momentum. If these tailwinds fade away, the bull case becomes incredibly hard to defend. 

Netflix Stock Returns versus the S&P 500

According to Seeking Alpha, here are Netflix's stock returns vs. the S&P 500:

• Over the past week, Netflix stock returned -5.53%, compared with 4.54% for the S&P 500.

• Over the past month, Netflix stock returned 3.13%, compared with 6.10% for the S&P 500.

• Over the past six months, Netflix stock returned -18.87%, compared with 6.93% for the S&P 500.

• Year-to-date, Netflix stock returned 3.79%, compared with 4.10% for the S&P 500.

• Over the past year, Netflix stock returned 0.01%, compared with 34.89% for the S&P 500.

• Over the past three years, Netflix stock returned 192.47%, compared with 71.66% for the S&P 500.