As a Result of Netflix's Overvaluation in a Momentum Market, Its Stock is Still a Sell

Netflix Inc.'s stock remained unchanged on Friday, despite analysts at Benchmark reiterating their sell rating while increasing the stock’s price target by 30%. The analysts argued that the stock appears overvalued in what they describe as a momentum-driven market.

‍

Benchmark acknowledged Netflix’s strong performance relative to competitors but highlighted potential challenges ahead. Analyst Matthew Harrigan noted in a client report that Netflix’s future growth in revenue and profitability will increasingly hinge on factors like pricing adjustments and newer initiatives, such as advertising-based video on demand (AVOD), particularly as the benefits of paid sharing begin to wane.

‍

Harrigan expressed regret for not upgrading Netflix to a buy rating in early 2023, despite having maintained a notably bearish stance on the stock during its struggles in 2022.

‍

The firm maintains that shifting consumer preferences and evolving profit models indicate greater momentum toward a unified global television spending market. This total addressable market (TAM) includes connected TV, linear advertising, and subscription services, areas where Netflix has a strong foothold.

‍

Harrigan praised Netflix’s recent creative endeavors, particularly the new “Squid Game” series, which has been a hit. He also commended the company’s innovative approach to sports programming, referencing events like the Mike Tyson-Jake Paul boxing match, the NFL’s Christmas Day playoffs, and upcoming WWE content.

‍

Additionally, Netflix has delivered compelling nonfiction content, such as “Don’t Die: The Man Who Wants to Live Forever,” a series focusing on Silicon Valley biohacker Bryan Johnson.

‍

According to Harrigan, Netflix’s “move fast and break things” philosophy, reminiscent of Silicon Valley’s tech culture rather than a traditional media company approach, has resulted in a diverse lineup of successful content. This includes globally acclaimed shows like “Stranger Things” and “Squid Game,” as well as a leading position in international programming.

‍

Despite Netflix’s successes, Harrigan described its long-term goals as “ambitious and optimistic.” The company aims to grow its membership base to 490 million by 2033 while achieving an operating profit margin of approximately 37%.

‍

Benchmark’s valuation acknowledges Netflix’s potential for significant growth but also considers the increasing competition in the video streaming industry. Harrigan emphasized that consumer activity is diversifying, with more attention shifting toward alternative media platforms like TikTok, augmented reality (AR), and short-form videos on platforms like YouTube. While Netflix is adapting to this landscape, these trends represent a growing challenge.

‍

Harrigan raised Netflix’s price target to $720, up from $555, reflecting the company’s strong performance and growth prospects despite competitive pressures.

‍

Over the past 12 months, Netflix’s stock has surged by 89%, significantly outpacing the S&P 500, which has gained 26% during the same period.

‍

While Netflix’s innovative strategies and creative successes position it well in the streaming market, Benchmark remains cautious about its valuation. The company faces headwinds from intensifying competition, shifting consumer habits, and the need to sustain its growth trajectory in an evolving media landscape.

‍

For now, Netflix continues to leverage its tech-first approach to deliver diverse content, expand its global reach, and adapt to changing market dynamics. However, achieving its ambitious targets will require navigating the complexities of an increasingly crowded and competitive streaming ecosystem.

‍