By Adam Clark
Netflix regained its position as a stock-market darling over the past 12 months as the market applauded its profit and subscriber growth. However, there are reasons to think the streaming platform might have peaked for now, according to Citi analysts.
Netflix stock has climbed 48% over the past 12 months through to Monday’s close. It’s a rally that has Citi analyst Jason Bazinet turning cautious and lowering his rating on the stock to Neutral from Buy, while keeping a $500 target price.
Netflix shares were down 2.0% at $475.21 in premarket trading on Tuesday.
“We see three potential risks. First, we believe 2024 revenue estimates may be a tad too high. Second, we see scope for 2025 content investments to exceed Street estimates. Third, we cannot rule out potential acquisitions,” wrote Bazinet in a research note.
Consensus expectations are for Netflix’s revenue growth to accelerate from 6% in 2022 and 2023 to 13% in 2024 and 2025, according to Bazinet. He argues that might have to be brought down toward the end of this year as comparisons become harder.
Bazinet’s other concerns are about potential spending. He puts Netflix’s likely cash spend on content in 2025 at around $20 billion, compared with expectations of $18 billion, based on historical spending patterns and the company playing catch-up after the Hollywood strikes and the Covid-19 pandemic hit output.
Netflix has forecast it will spend $17 billion on content in 2024, up from $13 billion in 2023 — a number that was lower than originally planned due to Hollywood strikes by writers and actors.
In addition, Bazinet noted Netflix might be tempted to make a significant acquisition, as it is currently on track to have more than $8 billion of net cash on the balance sheet by 2025. He said the most likely target is a videogame publisher, as Netflix looks to expand its presence in the gaming sector.
The bearish argument is a rare recent setback for Netflix, which has outperformed major media and streaming rivals in the last 12 months. Walt Disney stock has fallen 4.2% over that period through to Monday’s close and was down 0.4% in premarket trading. Warner Bros Discovery is down 9.2% over the past 12 months and was 1.2% lower in premarket trading Tuesday.
Citi’s Bazinet is in opposition to several of his peers. Analysts at J.P. Morgan recently backed Netflix to deliver average 2024 and 2025 revenue growth of almost 15%. They reiterated an Overweight rating and $510 target price on the stock in a research note last Thursday. KeyBanc analysts led by Justin Patterson raised their price target on Netflix stock to $525 in a research note in late December, maintaining an Overweight rating.
Write to Adam Clark at adam.clark@barrons.com