UBS Puts Netflix on Pause with Downgrade
Netflix downgraded to NEUTRAL from BUY: The firm lowered its rating and reiterated its price target of $535, which UBS says reflects solid current user dynamics vs. tougher comps for sub growth in the years ahead. The analyst notes that the usual investor fears surrounding competition, free cash flow, and content costs have been drowned out by enthusiasm over the stay-at-home trend and a strong slate of content.
“NFLX's long-term narratives remain intact but we would rather be constructive at levels when a mix of potential subscriber volatility, FCF dynamics & competition are better reflected in the share price.”
Lower rating, higher expectations: Despite the downgrade, UBS is raising its Q2 global subscriber net adds to about 9.0 million, up from its previous forecast of 7.49 million and company guidance of 7.50 million.
Fan favorite: In the US, Netflix is streaming 60% of the top 50 shows & movies as of Q2 2020, according to data cited by UBS. Netflix has an impressive lead over the competition, with Hulu grabbing the second place spot with an 18% share of top 50 shows & movies.
Glued to the screen: Netflix has a strong grip on consumption hours. UBS points to data that shows Netflix’s average monthly hours increased ~23% in Q2 QTD. Furthermore, Netflix consumption hours represented an average of about 29% of total US OTT hours in the same period.
