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Stock Analysis & Ideas

Netflix Stock: Multiple Headwinds Ahead?

Netflix (NASDAQ:NFLX) stock is under immense pressure, reflected by the significant drop in its price recently. It’s worth noting that Netflix stock has lost over 40% of its value in the last three months. Meanwhile, it is down about 32% this year. 

Moderation in paid-user growth rate amid increased competitive activity has weighed on Netflix stock. 

Now What?

While Netflix stock has lost a considerable portion of its value, it still faces multiple headwinds, noted Needham’s Laura Martin. 

Martin warns investors about an increasing churn rate and Netflix’s “mix shift toward lower ARPU (average revenue per user) geographies.”

The analyst pointed out that Netflix has introduced “lower-priced products (like $3/month mobile-only sub plans in India),” which is a cause of concern amid an increase in programming investments. 

Martin, who has a Sell rating on NFLX stock, added that it is “no longer a growth stock (our view), yet it trades at 8.2x EV/revs, 34x EV/EBITDA and a 42 P/E on our FY22 estimates.”

Who is Buying the Dip?

While Martin has a negative outlook on NFLX stock, Netflix CEO Reed Hastings has acquired $20 million worth of NFLX shares on the pullback. Further, Bill Ackman’s hedge fund Pershing Square Capital Management added 3.1M NFLX shares.

In a letter to investors, Bill Ackman stated, “The opportunity to acquire Netflix at an attractive valuation emerged when investors reacted negatively to the recent quarter’s subscriber growth and management’s short-term guidance.”

Further, he listed multiple catalysts, including NFLX’s recurring revenues and content, among others, for his bullish view.

Also, TipRanks’ data shows investors (who hold portfolios on TipRanks) are buying the dip. Per TipRanks’ Stock Investors tool, 15% of these investors have added NFLX stock to their portfolio over the last month. Meanwhile, 3.5% of investors increased their exposure to Netflix stock in the last seven days. 

Wall Street’s Take

Analysts are cautiously optimistic about Netflix stock due to the moderation in its growth rate. NFLX stock has a Moderate Buy consensus rating based on 17 buys, 15 Holds, and 3 Sells. 

Moreover, the average Netflix price target of $521.21 indicates 27.1% upside potential to current levels.

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