“We have concerns around the impact of a consumer recession as well as heightened levels of competition,” said Goldman Sachs analyst Eric Sheridan.
Updated at 7:08 am EST
Netflix (NFLX) – Get Netflix Inc. Report shares slumped lower Friday after analysts at Goldman Sachs lowered their rating and price target on the online streaming group amid surging inflation and heightened competition.
Goldman Sachs analyst Eric Sheridan lowered his rating on the stock to ‘sell’, while slashing his price target by $79 to $186 per share, citing broader consumer pressures and the increased number of rivals in the entertainment streaming market.
Netflix lost 200,000 subscribers over the the first three months of the year and expects to lose another 2 million by the end of the second quarter, thanks to what the company said was a mix of rising prices, increasing competition and password sharing, which Netflix estimated at around 100 million households world wide.
“We have concerns around the impact of a consumer recession as well as heightened levels of competition … and view Netflix as a show-me story with a light catalyst path,” Sheridan said. “We modestly lower our paid streaming subs across every region.”
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Netflix shares were marked 4.12% lower in pre-market trading to indicate an opening bell price of $184.82 each, a move that would extend the stock’s year-to-date decline to around 70%. The stock has shed more than $210 billion in value over the past six months.
Netflix’s first quarter earnings were essentially solid, with a bottom line of $3.53 per share that came in firmly ahead of the Street consensus forecast of $2.89 per share and group revenues that were 10% higher than last year, at $7.87 billion, and just behind analysts’ estimates of a $7.93 billion tally.
Netflix also said it expects to be free-cash flow positive for the 2022 year and beyond, with first quarter free cash flow rising 15.9% to $802 million.
It may also pivot to an ad-based model in order to offset slumping revenue growth, and was linked to a takeover of streaming service hub service Roku (ROKU) – Get Roku Inc. Report earlier this week.
D.A. Davidson analyst Tom Forte said in a recent research not that Roku has “myriad” ways in which it can help Netflix thanks in part to its ability to “enable Netflix to target advertising on Roku’s platform to try to get consumers to restart the service.”
“For example, it could give Netflix the opportunity to showcase the first season of one its shows on The Roku Channel as a way of inspiring consumers to subscribe to Netflix to watch the remaining seasons,” Forte said. “At a high level, it could help Netflix navigate its initial foray into advertising.”