This morning, Buckingham Research analyst Matthew Harrigan downgraded Netflix (NASDAQ:NFLX) shares from Neutral to Underperform, while issuing a $333 price target, which implies a 17% downside from today’s closing price. The reason? The analyst pointed out that the Street’s lofty projections are already reflected in its stock price and an increasingly competitive global marketplace caps the company’s ability to raise subscription costs.
Harrigan stated, “Second-quarter 2018 original content and new season installment quality is underwhelming, even as sheer output volume enabled Netflix to finally pass HBO in the number of Emmy Award nominations. Even if Netflix Google search activity suggests a possible beat we would use another post-earnings pop to take profits […] As TV goes all- IP delivery globally, and Netflix soon loses much outside content, it will have to increasingly differentiate itself through in-house production as its user experience advantage erodes.”
“We estimate that its current stock price implicitly discounts achieving 360KM global members in 2025 on the way to 505M in 2033, as well as a longterm (2033) near 35% operating profit margin – above BRG’s (actually bullish) 324M 2025 and 447M 2033 subscriber estimates. International competitive intensity is increasing, while pricing power is limited in high growth and especially competitive middle-income markets like India. (This is even as pricing may be an upside lever in the U.S., etc). As TV goes allIP delivery globally and Netflix soon loses much outside content it will have to increasingly differentiate itself through in-house production as its user experience advantage erodes,” the analyst added.
Smile, Matthew Harrigan, you made the right call. Netflix shares are tumbling nearly 14% in after-hours trading Monday on the back of disappointing second-quarter earnings.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, Matthew Harrigan is a 4-star analyst, which has a yearly average return of 6.8% and a 64% success rate. Harrigan has a 26% average return when recommending NFLX, and is ranked #815 out of 4843 analysts.
But the Street does not share this pessimism — quite the contrary. Right now, Netflix stock has a Buy analyst consensus rating with 20 recent Buy ratings. This is versus 10 Hold and 2 sell ratings.