Changing Channels: Buckingham Turns Bearish On Netflix Ahead Of Q2 Print

Netflix, Inc. (NASDAQ: NFLX) investors should hold a bearish stance on the stock ahead of the company's second-quarter earnings report after Monday's market close, according to Buckingham Research Group. 

The Analyst

Buckingham's Matthew Harrigan downgraded Netflix from Neutral to Underperform with a price target lifted from $301 to $333.

The Thesis

Netflix is expected to show a 41-percent increase in revenue to $3.935 billion and a 270-percent increase in operating profit to $472 million in the Q2 report, Harrigan said in the downgrade note. (See the analyst's track record here.)

Yet xpectations for total U.S. subscriber net additions of 1.25 million and international additions of 5.12 million are "hardly remarkable" given a 75-percent increase in marketing spend and new partnerships, the analyst said. Original content releases in the quarter as a whole were "underwhelming"; the competitive environment toughened in Germany; and content in smaller key markets like the Czech Republic isn't faring well with customers, Harrigan said. 

Netflix shares already discount the streaming video platform's achievement of 360 million global members in 2025 and 505 million members in 2033, the analyst said. Over the coming 15 years it is likely that the competitive environment within the streaming video segment will increase and Netflix's pricing power in middle-income key markets like India will be limited, Harrigan said— especially in the face of competition from cheaper alternatives like Hotstar, priced at just $3 a month including sports, 

Price Action

Netflix shares were trading higher by 0.3 percent premarket Monday. 

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