Are the Bears About to Come Down on Netflix?

Chris Lange

Netflix Inc. (NASDAQ: NFLX) might be in for some trouble in the coming years with a couple of its most popular shows leaving the platform. Although, for the most part, analysts have been bullish on Netflix over the course of 2019, the departure of “The Office” and “Friends” could through a wrench in the company’s plans for growth going forward.

A couple of analysts recently weighed in on this prospect. Note that while their targets are more optimistic as the stock is up about 42% year to date, the overall sentiment is somewhat neutral.

Rosenblatt reiterated a Hold rating and raised its price target to $370 from $350. Despite the raised price target, the firm was quick to mention that the company will need to step up its game with comedy content.

In the report, Rosenblatt explained that with rising competition for scripted originals and key licensed content like “The Office” and “Friends” leaving the service soon, Netflix is increasingly pivoting toward comedies specials and documentaries to drive its share in viewing hours and fend off incoming competition.

For the firm to get more bullish on the stock, Rosenblatt needs to see either sustained 25% or more revenue growth through 2021 or a steeper free cash flow leverage trajectory. While the international sub-estimates already imply aggressive penetration assumptions, the firm believes that Netflix would have to beat them by about 10% to drive these levels of growth.

Separately, Evercore ISI raised its price target to $380 from $350. The firm said that it thinks Netflix is showing “improving” profitability trends. Its report further detailed:

Overall, we think the debate could be slowly shifting somewhat away from accelerating subscriber growth and towards improving profitability trends, as shares have traded range-bound over the last six months despite two consecutive quarters of record-setting subscriber additions. While 2Q global subscriber addition guidance of 5M (down 10% y-o-y) looks achievable (despite a price increase in the US), we expect focus on the release could center on 3Q expectations to get a more accurate sense of full-year and longer-term platform growth trajectory.

Shares of Netflix traded at $380.39 on Wednesday, in a 52-week range of $231.23 to $419.77. The consensus price target is $390.03.