What's Going On With Netflix Stock Monday?

Netflix Inc NFLX shares are trading lower Monday as several analysts weigh in on the entertainment giant ahead of earnings next week. Much of the weakness appears to be due to a downgrade from Barclays.

What Happened: Barclays analyst Kannan Venkateshwar downgraded Netflix from Equal-Weight to Underweight on Monday and maintained a price target of $550, citing valuation concerns.

Venkateshwar’s downgrade is built on the idea that Netflix has had to lean into new growth drivers more heavily in recent years in order to keep revenue growth in the double digits. The Barclays analyst believes this growth push, which includes things like paid sharing, has likely pulled forward future growth.

“Even with these levers, growth is slowing and every lever now has corresponding trade-offs,” Venkateshwar said in a new note to clients.

The Barclays analyst believes Netflix will have to lean on pricing to maintain growth in regions where it has seen the most revenue growth in recent years.

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The analyst noted that Netflix’s marketing costs are the same as they were in 2019, which has helped the company drive operating leverage in recent years. However, Venkateshwar also believes Netflix has benefitted from a pull forward in margin expansion, which has created “unrealistic” expectations for long-term margin growth and free cash flow generation.

“Netflix is trading at its highest valuation gap since '22 when EPS/EBITDA metrics became more relevant … The company's valuation is also high vs expected future growth,” the Barclays analyst said.

On a more positive note, Goldman Sachs maintained a Neutral on Netflix and raised the price target from $659 to $705. Although continued stock outperformance has raised valuation concerns, Goldman remains positive on Netflix ahead of earnings next week.

The analyst highlighted recent third-party data showing that Netflix maintains a strong market leader position, giving the company pricing power and lower competitive intensity.

Piper Sandler also released a positive update on Monday. The analyst firm upgraded Netflix from Neutral to Overweight and raised the price target from $650 to $800 to reflect the company's clear leadership in the streaming space.

"Notably, our prior Neutral stance was centered around valuation, but now, we appreciate the company is expensive for a reason," Piper Sandler said.

The analyst firm believes positive earnings revisions could be on the horizon, highlighting Netflix's ad-tier business and multiple levers the company can pull in its ads-free business. Piper Sandler also noted that consensus estimates for margins could prove to be conservative.

NFLX Price Action: Netflix shares were down 2.16% at $704.16 at the time of writing, according to Benzinga Pro.

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