Netflix: Wall Street Delivers Mixed Messages

Financial analysts on Tuesday showed investors mixed messages on the streaming giant, Netflix (NASDAQ: NFLX). As Needham analyst Laura Martin turned bearish, Guggenheim analyst Michael Morris held his bullish thoughts toward the company.

“We note that content fees are typically at fixed rates over multi-year contracts and typically are not based on subscriber levels. Separately, in May, the EU proposed legal changes that would force Netflix to fund European-made films. This implies higher costs and lower returns on invested capital as local content often does not travel well globally. If Netflix choses to exit certain EU markets to avoid these requirements, this would slow international subscriber growth,” said Needham analyst Laura Martin. She emphasized her thoughts on “heightened fundamental risks” suggesting valuation multiple contraction.

The U.K. is most likely the second-largest market of Netflix after the U.S. Therefore, there could be an international slow growth of Netflix’s subscribers. This will put the markets in U.K. and EU at risk due to dramatic downward GDP revisions after the Brexit. 

On the other hand, Guggenheim analyst Michael Morris reiterated his buy rating on Netflix and targeted the price of 150 mainly due to the underappreciation of Netflix’s U.S. market.

“Consensus investor expectations underappreciate the long-term domestic opportunity that is presented by an industry-low hourly consumption cost to the consumer,” wrote Guggenheim’s Michael Morris. “We expect Netflix to continue to take usage share from traditional linear networks and as such see the company having greater potential for future domestic price increases than current consensus expectations imply.”

The stock of streaming video giant Netflix got very different from the two observers on Tuesday. The price went down in the morning and closed at 97.91, up by 1.28%.

Over the past year, Netflix’s stock price is between $79.95 and $133.27.

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