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Phillip Capital has downgraded streaming giant Netflix (NASDAQ:NFLX) to “sell” from a previous investment rating of “neutral” on Tuesday.
Analysts led by Helena Wang said the rating change was triggered due to the recent share price rally.
They remain cautious on the stock given its “stretched valuation” and declining engagement per viewer, which might drag down ad revenue, making it harder to hit its target of doubling ad revenue in 2025.
They believe new membership adds are likely growing at a much faster pace based on 1H25 revenue expansion (+14% YoY), which has caused engagement per viewer to decline.
“Lower engagement means fewer ad impressions per user, which can directly reduce advertising revenue,” the research firm said. “However, part of this could be caused by NFLX clamping down on account sharing, causing casual or infrequent viewers to shift into separate accounts, which show lower engagement per user.”
Phillip continues to view NFLX as resilient with limited tariff exposure and strong earnings growth.
“NFLX maintains its leadership in the VODS, which is reinforced by notable pricing power and improving margins. NFLX’s diversified content slate is paying off and will continue to pay off,” the research firm said.
NFLX’s price target was maintained at $950, implying a downside of over 21%. Stock is up 38.4% so far this year, while the benchmark S&P index is up 7.2%.