Investors in streaming entertainment provider Netflix (NASDAQ:NFLX) are certainly having a fantastic year so far, with shares surging nearly 120% in value – over 20 times the percentage gains of the S&P 500. However, the stock’s near all-time high valuation leaves one analyst cautious in the near term.
This morning, Nomura analyst Mark Kelley initiated coverage of Netflix with a Hold rating and a $370 price target. With Netflix shares currently trading for $418.65, this implies 12% downside to the stock over the next 12 months. But is Kelley right about Netflix? (To watch Kelley’s track record, click here)
Kelley explained, “Netflix’s expansion has been an undeniable success story, and we think that significant opportunity remains for both subscriber growth and ARPU increases. However, the company faces intense competition, a maturing U.S. market, and the potential for a longer-than-expected international ramp.”
“As it currently stands, the streaming video space features tough and intensifying competition. Netflix’s competitors can be divided into three main groups: SVOD services with broad content bases, such as Prime Instant Video and Hulu; vMVPDs, such as Sling, DirecTV Now, and YouTubeTV; and direct-to-consumer OTT services of established properties, such as HBO Now, CBS All Access and ESPN+. Netflix was second to arrive on the SVOD market in 2007, following the launch of Prime Instant Video in late 2006. Initially offered as a complement to its DVD subscription, Netflix did not offer streaming as a standalone service until late 2010. In the ensuing years, vMVPD and DTC services entered the market, with the pace of service launches accelerating after 2015. New entrants are now forced to compete in a crowded market with established brands, which strengthens the positioning of strong existing players with entrenched subscriber bases,” the analyst continued.
Ultimately, Wall Street is just not sure yet about this streaming-video giant, but the optimists still win out in the bigger picture. Out of 31 analysts polled in the last 3 months, 21 rate Netflix stock a Buy, 9 issue a Hold, while only 1 recommends a Sell. However, the 12-month average price target notably stands at $378.43, marking a potential downside on nearly 10% from today’s closing price.