Netflix (NFLX) shares took a dip on Monday, with several analysts weighing in on the entertainment giant ahead of its upcoming earnings report next week. The main driver of the decline appears to be a downgrade from Barclays, who expressed concerns about Netflix’s valuation.
Barclays analyst Kannan Venkateshwar downgraded Netflix from Equal-Weight to Underweight, maintaining a price target of $550. Venkateshwar’s reasoning revolves around Netflix’s recent reliance on new growth strategies to maintain double-digit revenue growth. These strategies, including paid sharing, have potentially pulled forward future growth, according to the analyst.
Venkateshwar believes that Netflix will need to rely heavily on pricing adjustments to maintain growth in regions where it has seen the most revenue in recent years. He also pointed out that Netflix’s marketing costs remain at 2019 levels, which has contributed to operating leverage in recent years. However, he believes that Netflix has benefited from accelerated margin expansion, leading to unrealistic expectations for long-term margin growth and free cash flow generation.
Despite Barclays’ bearish outlook, not all analysts are pessimistic about Netflix’s future. Goldman Sachs maintained a Neutral rating on Netflix and raised its price target from $659 to $705. While acknowledging valuation concerns due to the stock’s recent outperformance, Goldman remains optimistic about Netflix’s prospects ahead of earnings. They highlight recent third-party data showing that Netflix holds a strong market leader position, granting it pricing power and a competitive edge.
Piper Sandler also released a positive update on Monday, upgrading Netflix from Neutral to Overweight and raising its price target from $650 to $800. The firm cites Netflix’s clear leadership in the streaming space as a key factor in their upgraded outlook. While acknowledging Netflix’s high valuation, Piper Sandler believes it is justified given the company’s strong position. They believe positive earnings revisions are on the horizon, particularly driven by Netflix’s ad-supported tier and its ability to leverage multiple strategies in its ad-free business. The firm also noted that consensus estimates for margins could prove to be conservative.
As of this writing, NFLX shares were down 2.16% at $704.16. With earnings on the horizon, it remains to be seen how Netflix will address concerns surrounding its valuation and growth strategies.
