UBS Downgrades Netflix, Eyes High Valuation And Tougher Comps

Close on the heels of Goldman Sachs assigning a Street-high price target of $670 for Netflix Inc NFLX shares, a UBS analyst dropped their bullish stance. 

The Netflix Analyst: Eric Sheridan downgraded Netflix from Buy to Neutral with a $535 price target. 

UBS On Netflix's Valuation, Comps: Netflix's stock price increasingly reflects many of the "long-term business moat dynamics," including sustained growth in users and revenue and steady state margin expansion, Sheridan said in a Tuesday downgrade note. (See his track record here.)

The analyst attributed the downgrade to tougher comparisons for subscribers in the coming years, especially in 2021, in light of today's superlative user metrics.

Q2 Expectations For Netflix: Sheridan said he expects the company's second-quarter report to demonstrate strong user growth dynamics, as the COVID-19 environment continues to impact consumer behavior and consumption habits.

Netflix is likely to have experienced overall strong penetration and consumption trends, with low levels of churn in the U.S., the analyst said, citing UBS' Evidence Lab Survey.

UBS raised its second-quarter net adds estimate from 3.9 million to 5 million.

Citing comScore OTT measurement, Sheridan said Netlflix's U.S. consumption accelerated, with strong quarter-over-quarter growth.

Strong interest exists for new seasons of recurring titles, particularly in local language content, he said. 

"In our opinion, NFLX's long-term narratives remain intact but we would rather be constructive at levels when a mix of potential subscriber volatility, FCF dynamics & competition are better reflected in the share price."

NFLX Price Action: At last check, Netflix shares were down 1.72% to $516.46.

Related Links:

Netflix Analyst Raises Estimates Ahead Of Q2 Subscriber Report, Sees 'Content Advantage' Over HBO Max, Disney+

NFLX Stock Gains Put Pressure On Earnings Expectations

Photo courtesy of Netflix.