In a recent report, analysts from Evercore ISI, led Mark Mahaney, reiterated their Outperform rating on Netflix shares. However, they did reduce their price target for the stock from $550 to $500. The analysts highlighted three key points made Netflix at a recent conference.
Firstly, Netflix plans to increase its operating margins at a slower rate than previously anticipated. While the company had been growing its operating margins at a rate of 3% per year, it is now looking to take a more conservative approach. The analysts believe that this decision lacks a clear strategy and speculate that additional margins could be used for developing an ad-selling infrastructure or offsetting higher content costs.
Secondly, Netflix’s advertising revenue business is still in its early stages. The analysts noted that there is currently an imbalance between the demand and supply for Netflix ad space. However, they believe that over time, as recognition and selection of Netflix’s ad-supported offering grows, this issue could be resolved.
Lastly, ongoing Hollywood strikes are presenting challenges for Netflix. These strikes may lead to a gap in the company’s content schedule and could potentially delay price increases. The analysts predict that as Netflix raises its subscription prices, it should also focus on improving the quality and quantity of its content to provide better value for subscribers.
Despite lowering their price target, the analysts maintain their Outperform rating on Netflix shares. However, opinions among Wall Street analysts are divided. According to FactSet data, 53% of analysts covering Netflix have Buy ratings, 40% have Neutral ratings, and 7% have Sell ratings.
As with any investment, it is important for investors to carefully consider the analysis provided analysts and conduct their own research before making any decisions regarding Netflix shares.
Definitions:
– Operating margins: Operating margins are a measure of a company’s profitability calculating the percentage of revenue left after all operating expenses have been deducted.
– Advertising revenue: Advertising revenue refers to the income generated a company through the sale of advertising placements or services.
– Content expenditure: Content expenditure is the amount of money spent a company on creating, acquiring, or licensing content such as movies, TV shows, or music.
– Gross margins: Gross margins measure the percentage of revenue that remains after subtracting the cost of goods sold.
Sources:
– Evercore ISI
– FactSet
