'It’s All Priced in': UBS warns Netflix's stock is topping

Netflix

  • Potentially explosive international subscriber growth is already priced into Netflix shares, UBS analyst Eric Sheridan wrote in a note out to clients.
  • Sheridan downgraded the stock from “buy” to “neutral.”
  • He did, however, raise his price target to $US425 a share.
  • Watch Netflix trade in real time here.

Netflix shares have soared more than 114% this year, but the good times are bound to end soon, one analyst says.

Eric Sheridan, an analyst at UBS, says the huge gains that Netflix investors have become accustom to are coming to an end – at least for now. “It’s all priced in,” he wrote in a note out to clients Thursday morning, in which he raised his 12-month price target to $US425 but still downgraded shares from “buy’ to “neutral.” Netflix shares are now hovering around $US415 apiece, so Sheridan sees a mere 2% return.

The market has been pricing in Netflix’s relatively untapped international market, the major catalyst for the stock’s big gains this year and its 248.1 price-to-earnings ratio. “We think that Netflix stock now already reflects paying a ~40x GAAP EBITDA in 2022,” Sheridan said. “We don’t see the pronounced upside to second-quarter results vs. prior quarters.”

Original content is Netflix’s bread and butter, and the streaming giant hasn’t been shy about spending money for top producer talent like Ryan Murphy and Shonda Rhimes. While the company has highlighted $US8 billion as its figure for content spending, Goldman Sachs analyst Heath Terry says that refers only to the amortization of library content and the total number of $US14 billion has been mostly financed with debt.

But Sheridan’s data shows that spending isn’t keep subscribers on the platform – at least note yet. “On a quarter-over-quarter basis, Netflix continued to see a decline of monthly viewing hours in second-quarter while Hulu & Amazon posted modest gains, resulting in ~200 basis points of share loss for Netflix,” he said.

WedBush’s Michael Pachter, the biggest Netflix bear on Wall Street, explains one possible reasons why. He thinks Netflix’s content offering has dwindled in quality. Netflix’s second-quarter releases “lacked virtually all of the critically acclaimed and mass appeal launches that made up last year’s…slate,” he said.

Netflix reports second-quarter earnings on July 16, with Wall Street analysts surveyed by Bloomberg expecting earnings of $US0.79 a share on revenue of $US3.94 billion.

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