Netflix, Inc. Downgraded For Perfection Pricing

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Analysts have been pushing their price targets for Netflix higher and higher, almost getting into a pricing war to see who can slap the highest target onto the stock. However, now that Netflix shares have increased 95% in just the last six months alone, one firm is bucking the trend.

Societe Generale downgrades Netflix

In a report dated June 24, Societe Generale analysts Christophe Cherblanc, Laurent Picard and Simon Baker said they downgraded Netflix two notches from Buy to Sell. The reason they downgraded the stock is because they now believe it is “priced for perfection.” In spite of the downgrade, they continue to see Netflix as “deeply disruptive” in the U.S. market. They also increased their price target on the stock from $480 to $585 per share, although their target remains much lower than many of the other targets that are currently on the stock.

Indeed, Carl Icahn apparently agrees with the firm’s analysts, as he announced on Wednesday that he had sold off his entire stake in the video streaming company.

Not so bullish on Netflix’s international expansion

Interestingly, the Societe Generale team not only bucked the trend in downgrading the stock but also opposes other firms on the topic of the company’s international expansion. Most firms have said Netflix has significant opportunities in international markets, but the Societale Generale team thinks the company is much less disruptive internationally than it is in the U.S. market.

They note that Netflix’s service costs about a tenth the price of the average cable TV bill in the U.S. but also that in international markets, cable TV is more affordable. The company said in April that it will complete its international expansion by the end of next year.

The analysts also think Netflix is “highly sensitive” to changes in perception on Wall Street.

How big is Netflix’s potential international market?

In light of their pessimistic view on Netflix’s international opportunities, the analysts considered which markets the company might expand into and which it might not. They think the video streaming provider hits a “sweet spot” in the U.S. market because of its price point. However, they also point out that it’s difficult to predict just how large the company’s international opportunity is. It’s unclear how big the total global addressable market is, although there’s no denying that it’s quite large.

Currently Netflix has 188 million subscribers in several countries including Canada, Latin and Central America, Scandinavia, the U.K. and Ireland, the Netherlands, and other European countries. The Societe Generale team expects launches in Italy, Japan, China, Hong Kong, Croatia, Slovenia, Portugal, South Korea, Greece, Turkey, Italy and several others, which should help Netflix reach 290 million subscribers. They assume Netflix will enter about 75% of the global addressable market.

They believe Netflix is unlikely to expand into several countries like India, Russia, Romania, Iran, the Philippines, Taiwan, Vietnam, and Thailand.

As of this writing, shares of Netflix were down 1.52% to $668.30 per share.

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