Streaming giant Netflix (NFLX) has been on a tear lately, particularly after posting third-quarter results that proved to be better than most saw coming. But not everyone is so sure that this is the start of a new renaissance for Netflix. Citi’s managing director, Jason Bazinet, recently offered comments casting some doubt on Netflix’s resurgence. Investors were not having it, though, and sent shares up nearly 10% in Friday afternoon’s trading.
Despite a third-quarter win and some “really good” fundamentals, as Bazinet described them, he is still holding a Neutral rating on Netflix stock. That might seem counter-intuitive to some, so Bazinet offered an explanation of why he is staying back.
Bazinet pointed to a “shifting bull case” that just keeps changing its value. In fact, the bar for Netflix just seems to get higher as the valuation multiple continues to expand, and that is likely unsustainable going forward. Bazinet pointed out that an “accelerating top line” is generally a necessary part of a multiple expansion scenario, and Netflix’s top line is actually starting to slow.
Price Hikes Start Up Again
There is already some downside cooking up for Netflix; the boost that it got from its password crackdown has now mostly been baked in, and it is looking for a new way to juice revenue. This is part of that top-line growth issue Bazinet discussed earlier. To that end, it is hiking prices, but only in certain areas.
The Middle East and Africa saw their Netflix prices jump last month, and now, a BBC report noted, prices in Japan, as well as some parts of Europe, will see increases. While advertising is expected to also spur some growth, Netflix issued some caution on this, calling it “early days,” and growth will not be visible until next year.
Is Netflix Stock a Good Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on NFLX stock based on 24 Buys, seven Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After an 88.17% rally in its share price over the past year, the average NFLX price target of $737.24 per share implies 2.26% downside risk.
