MoffettNathansoNetflix (NFLX) shares surged double digits on Wednesday, climbing at much at 14%, after the streaming giant reported strong fourth quarter earnings with subscribers topping 13 million.
Wall Street overwhelmingly applauded the report with analysts upping their price targets across the board.
Still, some warned of an overblown valuation while others have advised their clients to sit on the sidelines, at least for now.
Netflix’s double-digit subscriber gains may not be sustainable as the streamer slowly completes its password-sharing crackdown, according to some analysts.
“While we project subscriber growth will remain relatively high, we think the catalysts that led to outsize growth last year will significantly subside in 2024,” Morningstar analyst Matthew Dolgin wrote in a note on Wednesday. “But our sober look at the level of net member additions shouldn’t obscure how impressive Netflix’s performance has been.”
Despite that strong performance, however, the analyst, who upped his price target to $425 from $410, warned “the stock has gotten ahead of itself even as we expect Netflix to remain dominant.”
MoffettNathanson had a similar view point: “We are concerned that the current subscriber growth in US/Canada and Western European markets represent a pull-forward driven by ‘interventions’ of the most highly engaged password sharers, which could create a subscriber headwind pocket in the middle of this year.”
In other words, the juice from the password crackdown has been all but squeezed.
“That pull-forward, as well as a potential churn spike from increased pricing on the high end of Netflix’s rate card, could come together to spook the market and re-set Netflix’s multiple yet again,” analyst Michael Nathanson said. He maintained his Neutral rating on the stock as a result.
Deutsche Bank also cautioned against the streamer’s valuation, downgrading its rating to Hold from Buy.
“Netflix is still the best story in media among the vertically integrated producers/programmers/distributors,” lead analyst Bryan Kraft wrote. “However, we think that Netflix’s leadership position is fully priced into the stock at these levels.”
Kraft, who raised his price target to $525 from $460, added, “We see this as leaving little room for multiple expansion given what we think will be peak EPS growth in 2024.”
