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Evercore ISI Gives Netflix, Inc. (NFLX) a Thumbs Down!

In a report made public on Monday morning, Evercore ISI, downgraded Netflix, Inc. (NASDAQ:NFLX) stock, dropping the target price down to $380 from $450. Evercore is of the view that intense competition that Netflix, Inc. is finding itself in, might make it invest in acquiring video content which may not bring its investors good returns. Ken Sena, Managing Director of Evercore ISI was on CNBC to speak about his company’s analysis on Netflix, Inc. stock.

Netflix, Inc. (NASDAQ:NFLX)

“Netflix has probably made the decision to assume more content risk. As that has happened they have done a very good job of it. But, I think, as you look now, you can start to see where about any layer in you mobile experience can deliver a very good video quality. What it does is that it opens up the door for many current content providers of scale to start to leverage some of these distribution channels. I think it starts to create some pressure. […] I think as they look to try to buy more content as a way to scale – I do agree that it’s the right strategy – but I think that in some respects you have to give credit to the fact that this is out of its defensive need to make this investment and as they do so – I think then you have to look at the valuation and start to say – well, is there a guarantee that you’re going to see that out-sized return on this investment? Or given the fact that this investment is being made during the next couple of years, I want to look it in perspective,” Sena said.

Netflix, Inc. (NASDAQ:NFLX) shares have dropped to a two month low after Evercore ISI downgraded its stock from ‘hold’ to ‘sell’. According to Sena, Netflix, Inc. is under a lot of pressure to make huge investments in acquiring video content which might not bring Netflix, Inc. good returns.

“As Netflix does go down that path, it’s going to be important that they continue to deliver to those subscribers in terms of the quality of the content. And I think as other platforms come to the mix – whether it’s Facebook, Google, Snapchat, Amazon, Yahoo, etc etc – the list goes on. I think what they try to do is deliver that content provider better efficiency than they were getting before. […] Generally, I think that drives the price up for the premium content. The value of some of those subs may not be quite high as a profitability standpoint as we may have previously assumed,” Sena said.

Evercore has cut the target price of the streaming company’s share to $380 which is 13% less than its $450. Netflix, Inc. (NASDAQ:NFLX) clearly seems committed to cover great lengths to bring original premium video content to its growing number of subscribers but it may waiver in its decision a this practice can bring Netflix, Inc. in trouble with its investors who are not absolutely certain about its investment strategies. As Sena noted, Netflix, Inc. is under pressure.

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