UBS downgraded its Netflix Inc. rating on Thursday to neutral from buy, though it increased the price target to $425 from $375.
The firm’s analysts, led by Eric Sheridan, said the streaming giant’s potential long-term growth is already reflected in its current stock price, but the price does not adequately reflect “risks to the downside from competition, free cash flow burn, & dependence on capital markets for content spending goals,” though Sheridan acknowledged “NFLX NFLX, -1.80% could surprise us with better Q2 results & Q3 guide.”
UBS predicts Netflix will report a net of 1.2 billion new domestic subscribers and 5.1 new international subscribers, roughly in line with current analyst estimates. But the firm also said they saw “weakening US consumption trends” for Netflix in the second quarter, based on data from comScore. Sheridan also said sequel seasons for core franchises in the second quarter had underperformed prior seasons, most notably “13 Reasons Why” and “Luke Cage,” based on a Google search trends analysis the firm conducted.
However, UBS’ long-term outlook for Netflix remains positive. “We believe Netflix’s core competencies in both content & tech should drive a virtuous circle of greater subs and increased viewing time, broadening its moat for global leadership in subscription video on demand,” Sheridan wrote.
Netflix shares are down 2.6% in pre-market trading. The company’s price has risen 118% so far this year, while the S&P 500 SPX, +0.62% has gone up 3.8%.