Why This Netflix Analyst Says Bear Thesis Is Building

Netflix, Inc. NFLX was one of the disappointments of the Big Tech reporting season. An analyst at Needham has cautioned that more downside could be ahead. 

The Needham Analyst: Laura Martin has an Underperform rating on Netflix shares.

The Netflix Takeaways: A shift in sentiment occurred among institutional investors and they now feel the streaming giant is short on content and isn't immune to competition, Martin said in a Monday note. 

These investors no longer view Netflix as a growth stock, the analyst said.

Netflix's revenue growth has decelerated from 29% in 2018 to 19% in 2021 and is estimated to slow further to 12%-14% in 2022, she said.

At this rate, revenue growth will be at an anemic 9% in 2023, making the company ineligible to qualify as a growth stock, Martin said. 

"Among the 9 streaming stocks we cover, NFLX has one of the slowest revenue growth rates, yet its valuation multiples are among the highest."

Related Link: Why This Analyst Thinks Netflix Can't Win Streaming Wars With Its Current Strategy

The shift in sentiment is also due to Netflix's slower subscriber growth, as evidenced in the fourth-quarter results, lower-than-expected margin forecast, lower average revenue per user and rising content costs due to competition, the analyst said.

Additionally, the company has hit maximum penetration in the U.S., offering limited scope for upside in subscriber numbers, she said.

Netflix faces risk from a rising interest rate environment given that it had $15 billion in debt and $6 billion of cash at year-end 2021, Martin said.

Investors also worry about Netflix being unable to hit its objective of reaching positive cash flow in 2022 given rising content costs, lower 2022 subscriber additions and falling operating margins, the analyst said.

NFLX Price Action: Netflix shares were trading 2.12% higher at $399.62 Monday afternoon. 

Related Link: Why Are Netflix Shares Down 30% In 2022?