Netflix stock was downgraded by Citi to Neutral from Buy in a note to clients on Thursday. The analysts noted that the stock is very close to their $722 price target and is unlike to hit their upside scenario of $950 per share.
Valuation fully reflects positive trends
Citi analyst Mark May notes that its current valuation fully reflects the positive trends witnessed by the firm. “We feel at this level the valuation is fully reflecting the positive trends that Netflix is seeing,” May said in an interview on CNBC‘s Squawk Alley.
This year so far the stock is up by over 92%, but May believes that the streaming firm lacks short-term momentum to take the stock up further. The analyst notes that the second and third quarters have been seasonally weak for the U.S. company in the past, which further limits its upside potential. In contrast, the first and fourth quarters have been strong owing to new series launches and more users buying subscriptions in the wake of the holidays.
This fund run by a SAC Capital alum bought restaurant stocks amid the pandemic
Prentice Capital Management was up 6.6% for the first four months of the year, compared to the S&P 500's 9.3% decline and the Russell 2000's 21.1% decline. The HFRX Equity Hedge Index was down 9.4% for the quarter. Q1 2020 hedge fund letters, conferences and more Gross and net exposures In his first-quarter letter to Read More
Noting that the stock has gained 50% since Citi upgraded the stock in April, May added, “We’re not quite ready to give them that full value.”
A few days ago, billionaire investor Carl Icahn announced that he sold his remaining stake in Netflix. Also the streaming company recently announced a 7-for-1 stock split. However, May stated that their rating cut has nothing to do with Icahn’s move.
Netflix planning to enter India
May described some upside scenarios for Netflix, such as a launch in Asian markets. May advised investors to stay cautious at the present valuation until they hear some positive news related to the streaming firm’s expansion into more European markets such as France and Germany.
In its Asian quest, Netflix is also planning to enter India by 2016, says a report from the Times of India. Citing sources, the newspaper says that the U.S. streaming firm will offer popular Indian shows such as Buniyaad, Nukkad and Malgudi Days and will be available on both Android and the iOS.
India presents a massive opportunity for Netflix, which globally has 62 million subscribers. With major carriers like Airtel and Reliance Jio making progress in offering 4G services, the country presents a major field for on-demand video services. In March, the streaming firm launched its services in Australia and New Zealand and currently is exploring options to enter China.