The nearly 40% sell-off in Netflix shares after a second straight un-Netflix like quarter has Wall Street analysts acknowledging the company is no longer worth owning at a premium valuation.
At least for now.
“Netflix is a growth company, but no longer a premium growth company,” said veteran tech analyst Mark Mahaney at EvercoreISI on Yahoo Finance Live. “I think that matters to the stock. I refer to premium growth as a company that can generate consistent 20%-plus top line revenue growth. And once you get below that evaluation parameter, the multiples the market is willing to put on a stock can collapse. Perhaps that is too strong a word, but come down strongly. That is what is happening with Netflix now.”
The valuation reset on Netflix is well-deserved, most on Wall Street agree in the wake of a surprising quarter for subscriber losses and weak guidance.
For the current quarter, Netflix said it expected an even steeper decline in new users as it battles through increased competition from the likes of Apple and Paramount and tries to get 100 million account sharers to pay up.
The streaming service is modeling for subscribers to decline by 2 million in the fiscal second quarter, whereas consensus analysts were looking for a gain of 2.4 million.
Mahaney said Netflix shares are now around a level that may make buying the name a reasonable decision.
“I am surprised it has sold off this much, it seems a little excessive to me. I think we have Netflix doing something like $14 in earnings next year. I think if you put a market multiple on that, something close to 20 times earnings, you see about a $280-$300 stock,” Mahaney explained.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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