Why this analyst sees Netflix stock crashing more than 60%

Netflix shares are overvalued at current levels, one Wall Street analyst argues. Read More...

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Believe it or not, there are still a few bears out there on Wall Street on the juggernaut stock that is Netflix (NFLX).” data-reactid=”16″>Believe it or not, there are still a few bears out there on Wall Street on the juggernaut stock that is Netflix (NFLX).

Take for instance Morningstar analyst Neil Macker.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“Our cautiousness around Netflix is around a number of things. Number one, cash flow for the company has been negative for a number of years and looks to be negative going forward as well. The cash burn is very high. Number two, and you are seeing this in the U.S., competition is expanding heavily here. Disney Plus has hit over 50 million subscribers, next month is the launch of HBO Max, Peacock, Hulu is picking up subscribers,” argued Macker on Yahoo Finance’s The First Trade. Macker adds that he is concerned about Netflix’s ability to raise prices further and increasing competition overseas, notably in the important market of India.” data-reactid=”18″>“Our cautiousness around Netflix is around a number of things. Number one, cash flow for the company has been negative for a number of years and looks to be negative going forward as well. The cash burn is very high. Number two, and you are seeing this in the U.S., competition is expanding heavily here. Disney Plus has hit over 50 million subscribers, next month is the launch of HBO Max, Peacock, Hulu is picking up subscribers,” argued Macker on Yahoo Finance’s The First Trade. Macker adds that he is concerned about Netflix’s ability to raise prices further and increasing competition overseas, notably in the important market of India.

Macker has indeed priced that level of caution into his fair value estimate on Netflix shares.

BOCHUM, GERMANY - MAY 11: (BILD ZEITUNG OUT) A smartphone screen is seen with the Streaming app Netflix on May 11, 2020 in Bochum, Germany. (Photo by Mario Hommes/DeFodi Images via Getty Images) — BOCHUM, GERMANY – MAY 11: (BILD ZEITUNG OUT) A smartphone screen is seen with the Streaming app Netflix on May 11, 2020 in Bochum, Germany. (Photo by Mario Hommes/DeFodi Images via Getty Images)

The analyst sees Netflix’s fair value at $160, or 62% below its current trading price. That gives Macker the distinction of having the lowest price target on Netflix shares of those analysts covering the company. The average analyst price target on Netflix is $448, according to Bloomberg data. Of the 47 analysts that cover Netflix on Wall Street, 30 rate the stock a Buy, eight see it as a Hold and six like Macker view it as a Sell/Underperform.

Macker’s upside fair value estimate is $289, and worst case is $90.

<h3 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Netflix bulls are beating the bears” data-reactid=”33″>Netflix bulls are beating the bears

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Despite the well-worn concerns about the company’s cash burn and increasing competitive set, the Netflix bears have been slaughtered consistently. The stock is up 22% over the past year and 385% during the last five years per Yahoo Finance Premium data. More recently, the stock has caught a strong bid following a robust first quarter for new subscribers with people at home quarantined during the COVID-19 pandemic and consuming a ton of content.” data-reactid=”34″>Despite the well-worn concerns about the company’s cash burn and increasing competitive set, the Netflix bears have been slaughtered consistently. The stock is up 22% over the past year and 385% during the last five years per Yahoo Finance Premium data. More recently, the stock has caught a strong bid following a robust first quarter for new subscribers with people at home quarantined during the COVID-19 pandemic and consuming a ton of content.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Global streaming net paid subscriber additions in the quarter tallied 15.77 million compared to the 7 million forecasted.” data-reactid=”35″>Global streaming net paid subscriber additions in the quarter tallied 15.77 million compared to the 7 million forecasted.

‘We see 3 reasons to buy NFLX today. 1) Addressable market is vastly under appreciated, providing significant runway for continued double digit sub growth. 2) Improving margins with path to sustained positive FCF. 3) Proven ability to create value under evolving landscape,” said Jefferies analyst Alex Giamo in a May 14 initiation of coverage note. For his part, Giamo has a $520 price target on Netflix shares.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.” data-reactid=”37″>Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.