Netflix: A Bull-Bear Debate

Analysts remain divided on Netflix, Inc. NFLX following the stock’s huge 2018 run-up and its disappointing third-quarter guidance. In the past two days, one Wall Street bull and one bear weighed in on Netflix and discussed the pros and cons of buying the stock.

RBC’s Bull Case

RBC Capital Markets analyst Mark Mahaney reiterated his Outperform rating for Netflix Wednesday and raised the price target from $360 to $440. Positive survey results in the U.S. and U.K. — as well as the latest data from India — indicate the long-term Netflix growth story is as healthy as ever, he said.

RBC found that Netflix’s U.S. penetration rate rose from 55 percent in May to 57 percent today. In the U.K., penetration rates jumped from 49 percent a year ago to 56 percent, according to RBC.

Google Trends data suggests interest in Netflix in India has spiked in the past several months, Mahaney said.

“We believe that Netflix has achieved a level of sustainable scale, growth and profitability that isn’t currently reflected in its stock price."

Buckingham’s Bear Case

On Thursday, Buckingham Research Group analyst Matthew Harrigan reiterated an Underperform rating and $305 price target for Netflix. Netflix stock is pricing in unrealistic growth levels, and the company is favoring quantity over quality with its $8-billion content budget, the analyst said.

“We remain unimpressed with Netflix's content delivery quality relative to its $8-billion expensed ($12-billion-plus in cash) 2018 programming spend, highlighted by this week's Streaming Observer conclusion that NFLX's emphasis on quantity vs. quality has relegated it to seventh place in original show quality using ratings from aggregators Metacritic and Rotten Tomatoes."

The news that Apple, Inc. AAPL and its nascent streaming service could be generating $4.4 billion in revenue by 2025 suggests Netflix could be facing unprecedented competition from a massive base of global iPhone users, Harrigan said.