Morgan Stanley trims Netflix target on near-term challenges
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Morgan Stanley analyst Benjamin Swinburne on Thursday trimmed his estimates for, and price target on Netflix's (NFLX
-1.2%) stock due a series of factors such as some near-term risk to subscriber expectations,
Swinburne took down his Netflix (NASDAQ:NFLX) target price to $425 a share from $450, saying that the stock is unlikely to perform amid falling estimates for net subscriber additions. Still, Swinburne left his equal weight rating on Netflix's (NFLX) shares unchanged and said that over the long term "we believe Netflix will deliver compelling revenue and margin growth."
Swinburne trimmed his first-quarter global paid net new subscriber forecast to 2 million from 2.5 million, and has a potentially conservative second-quarter net addition forecast to 1 million new subscribers.
Whether looking at consensus expectations for 17 million net additions this year, or Morgan Stanley's more conservative forecast of 12 million to 13 million additions, Swinburne said that Netflix (NFLX) will no longer grow at its pre-pandemic trajectory of about 25 million new subscribers a year due to three main reasons.
Swinburne said one is a "flatter S-curve" in Netflix's Europe, Middle East and Africa region, and its and Asia and Pacific regions, which might grow more slowly than the U.S. and Canada, Latin America and Western Europe areas did between 2016 and 2019. Those regions have lower pay-TV penetration and average revenue per user [ARPU], and might place a greater value on local programming.
Plus, Netflix (NFLX) faces competition in streaming from companies willing to be loss leaders.
"The roles are ironically now reversed as incumbent media companies are willing to lose billions building their own streaming services, Swinburne said. "Many legacy TV companies lamented the capital markets' willingness to finance Netflix's billions in cash burn as it scaled its business and contributed to cord-cutting."
Meanwhile, while Swinburne said Netflix's (NFLX) move into games has the potential to expand the company's total addressable market [TAM], the decision to opt out of offering live sports is a "TAM reducer."
Wall Street analysts currently expect Netflix (NFLX) to report a profit of $2.93 a share, on $7.95 billion in revenue, when it delivers its first-quarter results next week.