Shares of the streaming giant Netflix (NASDAQ:NFLX) recovered from the lows, thanks to the lower-than-feared subscriber losses in Q2. Further, its initiatives to reaccelerate growth boosted investors’ sentiment. However, the lack of near-term growth catalysts and competitive headwinds led to a pause in the recovery of the NFLX stock price.
Netflix stock has increased by over 21% in the last three months. This recovery gained steam after NFLX announced that it lost about 1 million subscribers in Q2. Earlier, NFLX expected to lose 2 million subscribers. Furthermore, its initiatives to drive engagement, average revenue per member, and an anticipated roll-out of a low-priced, ad-supported subscription plan were cheered by market participants.
While Netflix’s Q2 performance gave a respite to its shareholders, who are sitting on hefty losses this year, CFRA analyst Ken Leon downgraded the stock to Sell from Hold due to the lack of a near-term growth catalyst. Leon reduced his price target to $238 from $245. NFLX stock closed 6.1% lower following the downgrade.
The analyst is upbeat about NFLX’s planned introduction of an ad-supported subscription tier. However, the analyst doesn’t expect a positive impact of this on NFLX’s financials any sooner than 2023. Leon expects NFLX stock to underperform the S&P 500 Index (SPX) in the second half of 2022.
Competitive Headwinds to Remain a Drag
While Netflix is trying to reaccelerate growth and add more paid subscribers, the increased competitive activity could continue to play spoilsport. Built with the help of TipRanks’ website traffic screener, the graph below shows the most-visited streaming websites in July (based on the year-over-year growth).
The website traffic to netflix.com dropped 6.8% year-over-year in July. Meanwhile, website traffic remains subdued on a year-to-date basis.
However, web visits improved on a month-over-month basis for NFLX in July. Traffic to netflix.com increased 10.6% in July compared to June 2022.
Learn how Website Traffic can help you research your favorite stocks.
Is Netflix a Buy or Hold?
Wall Street analysts stayed on the sidelines due to near-term challenges. NFLX stock has received seven Buy, 19 Hold, and seven Sell recommendations for a Hold rating consensus. Further, NFLX price target on TipRanks shows that the upside is capped.
Analysts’ average price target of $229.61 implies 1.4% upside potential. Meanwhile, NFLX stock sports a Neutral Smart Score of 6 out of 10 on TipRanks.
Bottom Line: Headwinds could Stall Recovery
Netflix’s strong content and growth initiatives are positive and will likely support long-term growth. However, a slowdown in paid subscription growth and increased competition act as a deterrent and could stall the recovery until market participants see a visible improvement in paid subscriptions.
