Wary Analyst Drops Netflix Stock’s Target Price by $13

“The narrative has quickly shifted from invincibility to concern,” MoffettNathanson research writes of NFLX stock health

Analysts at MoffettNathanson have reduced their target price for Netflix by $13 per share, from $98 to $85. The firm still has the stock labeled “Neutral.”

Netflix stock is down 22 percent year-to-date in 2016, which is the opposite of its prior-year positive trajectory. Media analysts Craig Moffett and Michael Nathanson’s research suggests that 2015 maybe showed more stock momentum than the streaming giant actually earned — and the two believe a market course-correction is currently occurring.

“The recent collapse in the share price suggests that the narrative has quickly shifted from invincibility to concern,” MoffettNathanson research wrote in a paper published Friday.

When the stock markets opened in the morning, NFLX stock dropped $3 per share, getting dangerously close to Moffett and Nathanson’s revised target price.

The stock slip is nothing brand new — since Netflix’s fourth quarter earnings were reported last month, the stock has underperformed the S&P 500 by a negative 19 percent — but today’s timing could be (at least partially) tied to the publishing. Pictured above is one month of NFLX trading.

“The areas that could lead to some pause on the bullish Netflix call is the pace of guided [first quarter] domestic streaming subscriber net additions and the widening gap between cash spent on programming and amortization of that content,” MoffettNathanson wrote.

The analysts called the company’s Q1 domestic guide “relatively weak.”

MoffettNathanson expects Netflix will exceed Wall Street’s estimates internationally, but that actual margins overseas may not automatically follow suit. In other words, U.S. estimates appear too good to be true for Netflix, and international bottom lines aren’t quite a slam dunk.

The analysis group also called the upper end of Netflix’s 60-90 million household penetration target range a “long shot” at this point. And even reaching that 60 million mark should no longer be considered “a sure thing,” it added.

MoffettNathanson now forecasts that 2016 will end with Netflix reporting 49.2 million U.S. subscribers — which would mark 10 percent growth. At the end of the fiscal 2015, Netflix had 46.5 million domestic subscribers, of which 45.4 million were paying members.

In “NFLX: The Dark Side of the Mo (mentum); Cutting Target Price From $98 to $85,” MoffettNathanson identified the following six “controversies” that Netflix faces in the minds of the market:

1. Is Netflix reaching a peak in U.S. streaming subscribers?
2. Will Netflix U.S. contribution margins reach 40 percent by 2020?
3. Can international streaming keep surprising after its full global launch?
4. How quickly will international profits ramp?
5. Will the ramp in original content hours keep pressuring free cash flow?
6. How to value a global network?

Netflix did offer some good news to its subscribers on Friday: Hit series “Orange Is the New Black” has been renewed for three more seasons.

Netflix in February: What's Coming and What to Watch Before It's Gone (Photos)

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