Netflix ‘s valuation may not be able to withstand falling growth expectations, according to Wolfe Research. Analyst Peter Supino downgraded the streaming service to peer perform from outperform. He removed his price target on shares, which was previously set at $500. Shares closed Thursday’s trading session at $361.20. Supino noted that Netflix will likely continue to gain share of the global premium video revenue and is on track to create a “massive” long-term advertising business. However, he said he has growing concerns about the company’s 2024-2025 growth forecasts. “If future growth falls short, we doubt that NFLX’s 50% P/E and 70% EV/EBITDA premium to the S & P would hold up,” Supino said in a Friday note. “With reports of slow AVOD adoption, recent ARM shortfalls signaling trade down, management signaling less margin expansion, and a lack of compelling 3P data on sub growth, we believe the risk/ reward for NFLX is balanced.” In the medium term, the two biggest driver’s of Netflix’s multiple also look increasingly risky, Supino added. These include net additions due to planned price increases, elimination of the basic tier and higher-penetration and pull-forward due to paid sharing. The company’s chief financial officer Spencer Neumann also added that operating leverage of 300 basis points per year would not be prudent. “At today’s valuation, Netflix needs to show a virtuous cycle of content, engagement, subs & pricing for shares to appreciate. Netflix’s premium valuation multiple—CY25E EV/EBITDA = 17x & 5% FCF yield (24x on CY23E EV/EBITDA) – does not provide a margin of safety upon which to absorb the rising risk of growth expectations reductions,” Supino said. Shares fell 1.9% Friday morning. The stock is up 22.5% year to date. —Michael Bloom contributed to this report.
