Netflix, Inc. Stock Slapped With Rare Downgrade For Valuation

Netflix, Inc. Stock Slapped With Rare Downgrade For Valuation
jgryntysz / Pixabay

Netflix, Inc. (NASDAQ:NFLX) stock tumbled on Wednesday after an analyst downgraded it due to valuation. Thus far, the sky has been the limit for the streaming giant, as there’s been no end in sight for the soaring value of its stock. After three price target increases from three other firms earlier this week, Netflix stock climbed above the $300 level.

With Netflix stock on such a dramatic run as it’s been on lately, we’re probably going to be seeing a tidal wave of analyst adjustments, and the dam is starting to break. As more and more analysts find their price targets underwater, they’re going to have to choose: downgrade Netflix stock or raise their price target.

All it took was one downgrade for investors to finally question how high is too high for the company’s valuation. Stifel analyst Scott Devitt downgraded Netflix stock from Buy to Hold in a note released today, noting that it had reached his price target of $325 per share. He also pointed out that the company’s stock had climbed by almost 70% since the beginning of the year, while the S& p500 has only gained about 2%. Further, this year’s gains are tacked on to the 55% it gained in 2017. As a result, Devitt feels that Netflix stock “may have sprinted ahead of fundamentals in the short-term.” Following his note, Netflix stock plunged nearly 3%, falling as low as $314.56 per share.

Hayden Capital 2Q22 Performance Update

unnamed 12Hayden Capital's performance update for the second quarter ended June 30, 2022. Q2 2021 hedge fund letters, conferences and more Dear Partners and Friends, The markets continued to sell-off in the second quarter, especially for internet-based businesses.  This year continues to be the toughest stretch for us, since the Hayden’s inception.  Inflation concerns and the Read More

Devitt noted that the Q4 earnings release was the catalyst for this latest upward drive. Looking ahead to this year, he expects the streaming firm to add about 25.98 million subscribers, which is more than the 23.69 million the Street is currently expecting. He also pointed out that content investments will continue to weigh on free cash flow this year, as Netflix expects to burn between $3 billion and $4 billion in free cash this year and in the coming years. He looks for Netflix to raise another $3.6 billion in debt this year and next to fund those content investments.

Devitt’s view of Netflix stock runs contrary to the rest of Wall Street as analysts from other firms predict nothing but an upward trajectory. For example, Oppenheimer analyst Ari Wald told CNBC this week that he sees more record highs ahead for Netflix stock. He pegs support at around $287, which was the peak in January, and resistance at around $337 per share.

Also this week, Pivotal Research analyst Jeffrey Wlodarczak boosted his price target for Netflix stock from $300 to $400 per share. He said as long as the beat-and-raise quarters continue, the shares will keep climbing. He estimates the company’s user base at 250 million subscribers by 2024, which would mean that it will have to add 20 million in the coming years. At the end of last year, Netflix had about 117.6 million subscribers for its streaming business.

UBS analyst Eric Sheridan also boosted his price targets for Netflix stock earlier this week. He expects it to keep rising for the rest of this year despite the significant content investments. In a note to investors this week, he called the company a “content powerhouse that is actively building a global moat.” He raised his price target from $290 to $345 per share.

Macquarie analyst Tim Nollen raised his price target on Netflix stock from $275 to $330 per share earlier this week. He argued that the growing demand for 4K TVs will drive demand for the streaming company’s most expensive HD streaming plan, which should boost average revenue per user.

Updated on

No posts to display