The case against Netflix's stock is simple: rival media empires, both legacy and technology focused, don't need to beat Netflix at its own game, Citron's Andrew Left said in a research report. In fact, "any form" of deceleration in Netflix's business would be "devastating" to the company. Even if the competitive landscape doesn't catch up to Netflix, should the Street re-rate Netflix as a media company and not a technology company the impact to the stock would be to the downside.
He expect the stock to "dip back" to the $340 in the bear term.
Netflix is in a unique position where it can't expand its product offering but the three other "FANG" components most certainly can, Left wrote. Specifically, Netflix can't diversify into search, hardware, social or e-commerce, but Apple Inc. AAPL, Alphabet Inc GOOG GOOGL and Amazon.com, Inc. AMZN have already entrenched in Netflix's territory of streaming video.
Netflix bulls may be overlooking a handful of new headwinds, each of which can impact the stock's performance, Left wrote. These include:
- The combination of AT&T Inc. T and Time Warner Inc TWX;
- Expectations for Walt Disney Co DIS to be pursue M&A deals;
- Amazon has "billions to lose";
- Google's focus on content;
- Apple poaching Netflix executives; and
- Impact from net neutrality.
Bottom line, Netflix bulls need to keep in mind the dynamics in the media industry drastically changed this week and it would be a mistake for the new dynamics to be "ignored" by long-term Netflix investors.
Investors appear unfazed by the report, with Netflix up another 2.7 percent at $390.30 Thursday afternoon.
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