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Netflix shares fell to a near two‑year low on Friday after disappointing quarterly results.
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Amid a series of bearish analyst reports, a recent upgrade emerged over the weekend.
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With Netflix trading at a forward earnings multiple in the high teens, the former growth stock now appears attractive as a value opportunity.
After a year of weak financial updates, Netflix (NASDAQ: NFLX) is finally seeing a potential upside. The streaming leader’s shares slipped 7% on Friday following mixed results and cautious guidance, marking a 46% decline over the past year. Nonetheless, at least one Wall Street analyst views the decline as a buying opportunity.
Helena Wang of Phillip Securities upgraded the stock over the weekend. This follows a wave of downgrades from at least 14 analysts on Friday and another downgrade, as the share price has lost nearly half of its value since reaching an all‑time high last summer. The upgrade provides a closer examination.
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Success is relative
Wang’s upgrade stands out, being the only upgrade after a series of pessimistic Wall Street notes. It upgrades her firm’s rating from accumulate to buy and maintains a price target of $110.
NFLX data: YCharts.
As Netflix shares have slipped after five consecutive quarterly updates since peaking in June of last year, Wang’s upgrade provides a welcome contrast to the prevailing chart trends. Although Netflix remains the dominant streaming service with over 300 million paying households worldwide, its recent performance has put it out of favor. The upgrade does not instantly reverse momentum, but it offers encouragement to investors after a challenging year for the industry pioneer.
While the $110 price target may have appeared modest a few months ago when the shares were higher, it now implies roughly 60% upside from Friday’s closing price.
The analyst notes that membership trends remain strong and that subscribers continue to tolerate rising subscription fees. Although newer streaming services are beginning to achieve profitability, Netflix has been profitable since it added streaming to its disc‑based platform nearly two decades ago.
Wang believes strong engagement positions Netflix to accelerate profitability through expanded ad‑supported offerings. This contrasts with analysts who expressed concern after Netflix disclosed in its recent earnings call that it is considering free ad‑supported tiers in regions outside the United States.
Field of streams
Philip Securities, a smaller firm covering Netflix, is an exception to the typical bearish outlook. The weekend upgrade reflects a valuation‑driven recommendation amid the stock’s recent decline.
Historically, Netflix trades at a relatively low valuation, currently at 19 times its projected earnings for the year. While analysts may lower profit targets in the near term, Netflix seldom trades at such low forward earnings multiples.
Analyst sentiment was already turning negative before the official results were released last week. A few Wall Street professionals issued cautious notes ahead of the earnings reveal, creating a challenging environment for a stock that has lagged the broader market.
Near‑term concerns include a revenue guidance of just under 12% year‑over‑year growth for the current quarter, marking the weakest quarterly growth in three years. As the stock falls out of favor, speculation suggests Netflix may pursue a dilutive acquisition of a smaller competitor. Although the share price would need to nearly double to regain its 13‑month high, opportunities remain for a positive turnaround.
