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Netflix's U.S. Growth Is Slowing; Jefferies Sets $80 Price Target

Netflix's U.S. Growth Is Slowing; Jefferies Sets $80 Price Target
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Netflix, Inc. (NASDAQ: NFLX) is likely to witness flatter subscriber growth in the US than the market's current expectations, Jefferies’ John Janedis said in a report.

He assumed coverage of the company with an Underperform rating and a price target of $80. Although the company’s international business could remain robust, the stock may come under pressure owing to the slowing U.S. market.

The company’s first mover advantage seems to be eroding, Janedis mentioned. So far Netflix has built a massive sub base and content library, with minimal competition. However, the landscape could get significantly more competitive over the next five years, given the number of new SVOD/OTT products launched in the past year, and investments being made by existing platforms.

Related Link: Needham Downgrades Netflix, Cites 'Rising Growth Risks' Following Brexit Vote

Slowdown In U.S. Sub Growth

Management has guided to a long-term target of 60-90 million subs. “The low end of this range implies a BB home penetration rate of 52% (from 44% in '15) - well ahead of all peers. Given the platform's existing penetration rate, and the threat of building competition, we expect growth to moderate going forward,” Janedis wrote. The F2020 estimate of paying subs is 58.3M.

International Growth Not Linear

Although the International growth opportunity is significant in the long term, it could be more challenging than expected in the near term, “making growth nonlinear,” the analyst stated. The key challenges included “a limited amount of local content, language barriers, an expensive price point in certain markets, and underdeveloped payment processing / broadband infrastructure.”

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