Netflix shares drop as Citi downgrades rating

Netflix stock dropped by about 2 per cent in premarket trading on Tuesday as Citi strategists downgraded their rating, according to Investing.com report on Tuesday.

Citi have downgraded the massive streaming company’s stock from Buy to Neutral, citing “lofty expectations.” Optimistic expectations for the company in 2024-2025 have raised concerns. “In short, we believe expectations are high,” analysts stated.

“On almost every metric, the Street expects robust results over the next two years: 1) accelerating revenue growth, 2) EBIT margin expansion to new highs, 3) muted increases in content spending, 4) robust FCF, and 5) large share repurchases,” analysts stated in a client note.

They also emphasised 3 specific risks they see which are lower revenues, higher cash content costs, and potential M&A. They note that Netflix has not historically pursued large-scale M&A to the third risk.

Citi claims that these risks have led it to “no longer find the riskreward compelling,” which is why it downgraded the stock today.

“However, if Street estimates are accurate and if the firm does not buy back significant stock over the next two years, it will have more than $8 billion of net cash on the balance sheet by 2025, giving the firm ample capacity to pursue M&A.”

“We believe the most likely target is a video game publisher with a robust portfolio of IP.” They added.

Regarding NFLX stock, analysts kept their price target at $500.00 per share, indicating a possible gain of roughly 3% based on Monday’s closing price.