Deutsche Bank: Netflix Earnings Boom

In a surprising move, Deutsche Bank analyst Bryan Kraft has downgraded Netflix Inc. despite the streaming giant reporting impressive earnings that exceeded subscriber expectations by a wide margin. Kraft acknowledges that Netflix remains the best story in media among vertically integrated producers, programmers, and distributors, but he believes that the company’s leadership position is already fully priced into the stock at current levels.

Key Points:

1. Valuation Concerns:
   • Shares of Netflix are currently trading at 32 times estimated 2024 earnings per share and 27 times estimated 2025 EPS, according to Kraft.
   • The analyst suggests that the stock’s current valuation reflects Netflix’s peak earnings per share growth, which is expected to be 38% this year before decelerating to 21% and 16% in the following years.

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1. Earnings Growth Outlook:
   • Kraft anticipates that Netflix could experience peak earnings per share growth this year, with a subsequent deceleration in the coming years.
   • Despite a crackdown on sharing benefiting 2024 results, Kraft believes that the company has already harvested the low-hanging fruit.
2. Advertising and International Expansion:
   • The analyst points out that advertising for Netflix is still in its early stages, and the focus for 2024 will be on growing the ads tier base and expanding international sales efforts.
   • While Kraft downgraded the stock to a “hold” rating from “buy,” he increased his price target to $525 from $460.

Analysts’ Divergent Views:

1. Wells Fargo’s Perspective:
   • Analyst Steven Cahall maintains a positive outlook, stating that Netflix is still a growth stock with significant growth and margin potential ahead.
   • Opportunities such as licensing high-quality library content contribute to Cahall’s bullish sentiment, leading him to raise his price target to $650 from $460.
2. Evercore ISI’s View:
   • Mark Mahaney from Evercore ISI emphasizes Netflix’s expansion of its total addressable market through the introduction of an ad-supported tier.
   • Despite Kraft’s downgrade, Mahaney raises his price target to $600 from $500, maintaining an “outperform” rating.
3. Pivotal Research Group’s Optimism:
   • Jeff Wlodarczak of Pivotal Research Group remains steadfast in his belief that Netflix has already won the streaming wars.
   • Wlodarczak raises his price target to an impressive $700 from $600, attributing Netflix’s strong results to its dominant position in the streaming landscape.

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While Deutsche Bank’s downgrade suggests concerns about the current valuation and potential peak earnings growth for Netflix, other analysts remain optimistic, highlighting the company’s growth potential, market dominance, and strategic initiatives such as ad-supported offerings. The divergent views reflect the complexity of evaluating a market leader like Netflix, where future success hinges on maintaining innovation, subscriber growth, and effective adaptation to evolving industry dynamics. Investors will undoubtedly be watching closely as Netflix navigates the ever-changing landscape of the streaming industry.

In a surprising move, Deutsche Bank analyst Bryan Kraft has downgraded Netflix Inc. despite the streaming giant reporting impressive earnings that exceeded subscriber expectations by a wide margin. Kraft acknowledges that Netflix remains the best story in media among vertically integrated producers, programmers, and distributors, but he believes that the company’s leadership position is already…

In a surprising move, Deutsche Bank analyst Bryan Kraft has downgraded Netflix Inc. despite the streaming giant reporting impressive earnings that exceeded subscriber expectations by a wide margin. Kraft acknowledges that Netflix remains the best story in media among vertically integrated producers, programmers, and distributors, but he believes that the company’s leadership position is already…