Pivotal Research Downgrades Netflix (NFLX) Two-Notches to Sell

April 20, 2022 5:35 AM EDT
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Price: $190.85 +5.03%

Rating Summary:
    25 Buy, 34 Hold, 8 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 8 | Down: 12 | New: 20
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Pivotal Research analyst Jeffrey Wlodarczak downgraded Netflix (NASDAQ: NFLX) from Buy to Sell with a price target of $235.00 (from $550.00).

The analyst commented, "After what can only be called a shocking 1Q subscriber miss and weak subscriber & financial guidance we reduced our subscriber forecasts and pushed back our profitability forecasts substantially which led to a dramatic nearly 60% reduction in our target price to $235 and a reduction in our rating to SELL. The lower than expected subscriber growth appears directly related to 1) the sizeable pull-forward in demand due to Covid, 2) slow connected TV growth, 3) management noted that there were 100M households pirating the service globally = already high penetration w/ piracy, 4) competitive effects (although management pointed out at least in the US their share of TV viewing time remains unchanged) and we would add the ease with which consumers are able to churn between services and 5) macro factors (Covid, Ukraine). Management’s response is they will invest at heavier than expected rates to restart subscriber and ARPU growth partly by attacking the 100M pirated household opportunity. We believe this is a real opportunity to boost ARPU (and to lesser extent subscriber) growth in the medium term offset by the potential for a pushback from existing subscribers (= potential for materially higher churn especially if competitors are not also attacking those pirating their service which could actually become a selling point for those services). NFLX is also considering an ad supported cheaper version that may launch over the next couple of years, which we actually view net net negatively (we believe it cheapens the brand and the product vs. the current great consumer experience and introduces ad volatility to results)."

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix closed at $348.61 yesterday.

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