Netflix Facing New Execution Challenges Says Societe Generale By Investing.com

By Sam Boughedda

Societe Generale analyst Christophe Cherblanc reiterated a Sell rating and a $170 price target on Netflix (NASDAQ:) in a note to investors.

Cherblanc said the rating belies “belies a paradoxical 180° change in our assessment.”

“Based on a 10-year-view sanity check, we consistently argued that an ‘unanchored’ market valuation was embedding wildly optimistic LT assumptions, but we also stressed flawless execution. We believe this has now fully reversed, with the stock price meltdown now embedding a sensible risk/reward, albeit combined with new execution challenges (ability to contain costs in the face of a slowing top-line) and initiatives (launch of an ad-supported tier, crackdown on password-sharing) which are about-turns compared to NFLX’s historical stance,” the analyst wrote.

He added that the gap between the firm’s price target and Netflix’s share price is at its narrowest in “many years,” but they “still project a negative 12m TSR. Sell.”

Regarding Netflix’s password sharing issues, which it is working to address, Cherblanc explained that the company will need to be careful not to alienate users.

“100m households use shared passwords on a global basis, including >30m in UCAN, i.e. 45% of Netflix’s reported member base. Converting password sharers into true subscribers would come with very high marginal profitability, but the company would have to tread carefully to avoid alienating users (preliminary US surveys indicate 13% potential churn).”