Netflix stock falls as Citi cuts rating on 'lofty' expectations
Citi strategists lowered their rating on Netflix (NASDAQ:NFLX) today, causing shares to fall about 2% in pre-market trade.
The streaming giant stock’s rating is cut from Buy to Neutral with analysts citing “lofty expectations.” Concerns are raised regarding the optimistic expectations for Netflix in both 2024 and 2025.
“On almost every metric, the Street expects robust results over the next two years: 1) accelerating revenue growth, 2) EBIT margin expansion to new highs, 3) muted increases in content spending, 4) robust FCF, and 5) large share repurchases,” analysts said in a client note.
“In short, we believe expectations are high.”
Analysts also highlighted three specific risks they see: 1) Lower revenues, 2) higher cash content costs, and 3) potential M&A.
Regarding the third risk, analysts acknowledge that Netflix hasn’t pursued large-scale M&A historically.
“However, if Street estimates are accurate and if the firm does not buy back significant stock over the next two years, it will have more than $8 billion of net cash on the balance sheet by 2025, giving the firm ample capacity to pursue M&A.”
“We believe the most likely target is a video game publisher with a robust portfolio of IP.”
Based on these risks, Citi says it “no longer find the riskreward compelling,” hence today’s downgrade move.
Analysts maintained a $500.00 per share price target on NFLX stock, which suggests potential upside of about 3% based on Monday's closing price.
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