Netflix Stock Slides as Wall Street Rethinks Its Growth Trajectory

Netflix Logo on Computer - Getty - H 2019

Also on Monday, Wells Fargo initiated coverage of the streamer with a relatively lowly "market perform" rating and $288 price target.

In a stunning reversal of fortune, shares of Netflix are now down in 2019 after rising more than 40 percent through the first four months of the year, and on Tuesday the hits kept coming, this time in the form of a Wall Street analyst who reduced his target price "substantially" to $350 while it had been set at $515.

Jeff Wlodarczak of Pivotal Research said his less-bullish view is due to competition from Amazon Prime Video, Hulu, the upcoming Disney+ and Apple TV+, and others that are bidding the price of content ever higher, the most recent example being AT&T securing rights to reruns of The Big Bang Theory for about $600 million for its HBO Max service. Prior to that, Netflix secured Seinfeld for $500 million-plus after it lost Friends and The Office to higher bidders.

Netflix must not only spend more to secure content, it also has to contend with the fact that its competitors are advertising their services, the analyst says, noting that some of them bought commercials that aired during Sunday night's Emmys broadcast.

"Against this backdrop of accelerating industry spend, we believe the right move for Netflix management is to also materially accelerate their spend," says the analyst, adding that margins and free-cash flow will likely take a hit in that scenario.

Netflix shares were trading 4 percent lower in midday action Tuesday to $255, so Wlodarczak still sees the stock rising 37 percent over the next 12 months, based oh his ultimate price target.

"With the recent significant stock pullback, sentiment in Netflix is awful, setting the stock to potentially climb a wall of worry around the launch of Disney+, which we view as more of a threat to pay TV than Netflix," says the analyst.

Meanwhile, the Consumer Technology Association in July released its 2019 Mid-Year Sales & Forecast report, and it suggests the business of streaming is growing fast enough to support multiple competitors. In 2018, revenue generated by SVOD services was $20.4 billion in the U.S. and it should hit $26.1 billion this year and $32.3 billion in 2020, according to the forecast.

"All eyes are on live TV streaming services," says the CTA report, "offering cord-cutters access to previously unavailable content such as sports, live news and a plethora of networks."

Also on Monday, Wells Fargo initiated coverage of Netflix with a relatively lowly "market perform" rating and $288 price target.

Netflix shares have been falling not only due to upcoming competition, but also because it said in July that it lost U.S. streaming subscribers in the second quarter for the first time in its history.

Last week, analyst Todd Juenger of Bernstein opined that Netflix shares could fall to as low as $230 considering the suddenly bearish sentiment around the stock, although he also predicted that they'll shoot to $450 in the next 12 months as Wall Street realizes that while consumers are adding new streamers, they are not canceling their Netflix subscriptions.