Streaming giant Netflix (NFLX) managed to report robust third-quarter numbers that smashed expectations out of the water. The strong numbers provided a lift to Netflix stock, which has been dinged recently due broad market weakness. A month ago, the stock was trading north of $370. It dropped all the way to below $320 in October. Now, the stock is rebounding back towards $360.
All in all, the situation at Netflix is ostensibly favorable. The numbers remain good. The subscriber growth remain strong. Netflix stock corrected downward and is now presumably resuming its upward trend, thanks to strong fundamentals.
However, Aegis analyst Victor Anthony believes current valuation simply seems too full to support more upside. As such, Anthony reiterates a Hold rating on Netflix shares, with a price target of $320, which implies a downside of 12% from current levels.
Anthony commented, “Netflix surprised investors with materially higher 3Q subscriber net additions both in the U.S. and internationally, and 4Q guidance for subscriber net additions that was also materially higher than consensus. We believe, as we had in the past, that Netflix is getting a significant subscriber boost from the bundled partnership agreements with the payTV providers, ISPs and mobile operators across the globe, versus sub growth from direct to consumer […] All that is balanced by our concerns of a significantly high valuation where we see little multiple support, and a model that continues to burn cash. FCF loss will exceed $3B this year and next and an inflection is unlikely until perhaps 2022, at the earliest. That would mean Netflix would have to continually access the capital markets in a rising interest rate environment (or perhaps dilute equity). And while the competitive negative thesis has been weak, there are compelling alternatives coming to market that could exert downward pressure on the sub growth curve, and put upward pressure on content costs and marketing spend, which would push out further, the FCF inflection.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Victor Anthony has a yearly average return of 17.5% and a 66% success rate. Anthony has an 8.6% average loss when recommending NFLX, and is ranked #80 out of 4894 analysts.
If we turn to the Street in general, we can see that NFLX has a Buy analyst consensus rating. In the last three months, the stock has received 23 Buy, 6 Hold and 2 Sell ratings. These analysts have an average price target on the stock of $409.33, which implies a 12% upside from current levels. (See NFLX’s price targets and analyst ratings on TipRanks)