Netflix, once hailed as a stock-market darling, may have reached its peak for now, according to Citi analysts. Despite an impressive 48% climb in stock prices over the past year, Citi analyst Jason Bazinet has downgraded Netflix's rating to Neutral from Buy, while maintaining a target price of $500.
As of Tuesday, Netflix shares were down 2.0% at $475.21 in premarket trading. Bazinet points to three potential risks that could hamper Netflix's future prospects. Firstly, he believes that revenue estimates for 2024 may be too optimistic. Secondly, he suggests that content investments in 2025 could surpass Street estimates. Lastly, there is also the possibility of the company making acquisitions.
According to consensual expectations, Netflix's revenue growth is projected to accelerate from 6% in 2022 and 2023 to 13% in 2024 and 2025. However, Bazinet argues that these estimates may need to be revised downward by the end of this year due to increasing challenges in comparisons.
Bazinet's concerns also extend to potential spending. He predicts that Netflix's cash spend on content in 2025 could reach approximately $20 billion, exceeding expectations of $18 billion based on historical patterns. This is partly attributed to the company having to make up for lost production time caused by the Hollywood strikes and the impact of the Covid-19 pandemic.
Netflix's reign as a market darling may be facing some headwinds. While it has enjoyed significant growth and success, these potential risks call for cautious evaluation of its future prospects.
Netflix to Increase Content Spending to $17 Billion in 2024
Netflix has announced plans to increase its spending on content to $17 billion in 2024, up from $13 billion in 2023. The initial decrease in spending was attributed to strikes in Hollywood by writers and actors. Despite this setback, Netflix remains confident and is considering a significant acquisition to further expand its presence in the gaming sector.
Expanding into the Gaming Sector
As Netflix looks to diversify its portfolio, a spokesperson from the company mentioned that they are likely to target a videogame publisher for acquisition. With an expected net cash balance of over $8 billion by 2025, Netflix is in a strong position for such investments.
Strong Performance Compared to Competitors
In the past year, Netflix has outperformed major media and streaming rivals. While Walt Disney stock has fallen by 4.2% during this period, Warner Bros Discovery is down 9.2%. Despite these setbacks, Netflix has maintained its position in the market.
Varying Opinions Among Analysts
While Citi's Bazinet has expressed a bearish stance on Netflix, other analysts have different opinions. J.P. Morgan analysts have backed Netflix to deliver strong revenue growth of nearly 15% in 2024 and 2025. They have reiterated their Overweight rating and set a target price of $510 on the stock. KeyBanc analysts, led by Justin Patterson, have also raised their price target for Netflix stock to $525.
Overall, Netflix remains optimistic about its future with increased content spending and potential acquisitions. Despite differing opinions among analysts, the company continues to be at the forefront of the streaming industry.
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