Wells Fargo Says Netflix Is At A Turning Point

Netflix Inc NFLX is at a "turning point" with investors as management faces a few difficult decisions ahead that can impact the stock, according to Wells Fargo.

The Analyst

Wells Fargo analyst Steven Cahall initiated coverage of Netflix with a Market Perform rating and $288 price target.

The Thesis

Subscriber growth was once a key point of discussion among bulls and bears and could have been viewed in isolation, Cahall wrote in a note. Instead, subscriber growth needs to be discussed with pricing and content spending and its potential impact on free cash flow.

Specifically, management could increase pricing and spend more on content and this would impact free cash flow. On the other hand, lowering pricing and content spend could pose a risk to subscriber growth.

Cahall said bulls typically argue management needs to "go all out," especially its own produced content. On the flip side, bears believe this strategy is merely "buying subs" with no clear path to profit. For the time being "this balance is still being figured out."

Netflix continues to offer an "excellent value proposition" and remains one of the fastest growing stocks in the S&P 500 index valued north of $100 billion. Bottom line, there is still "plenty to like" in Netflix's story and the analyst says he is "far from Netflix bears."

Price Action

Shares of Netflix were trading lower by 2% Tuesday at $260.22.

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