Needham Offers a Case Where Netflix (NFLX) Drops 50% on Higher Churn
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Needham & Company analyst Laura Martin reiterated an Underperform rating on Netflix (NASDAQ: NFLX) on the belief that 2021 will be a year of digital attention recession. After being locked at home for more than a year, millions of consumers are eager to spend money and time in the physical world and since hours per day are fixed, this must come at the expense of digital hours.
The analyst stated "The US and EU are NFLX's highest ARPU, and we expect the highest churn in these regions in 2021 based on competitors' roll-out schedules. This implies that NFLX's revenue will be under downward pressure at the same time more countries are requiring local content minimums (ie, lower content ROIs)." She went on to state" If NFLX's sub growth turns negative in its highest ARPU territories owing to rising churn, we believe NFLX will lose its credentials as a growth stock (ie, valued at an EV/Rev multiple) and would be forced to revalue from its current 35x EV/EBITDA multiple on our 2022E estimate toward 15x, which is where Roku, SNAP, GOOGL, FB, EA and ATVI trade today. At a 15x EV/EBITDA multiple, NFLX would trade closer to $250/share, down 50% from current levels."
Shares of Netflix closed at $512.00 yesterday.
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