Evercore ISI taking ‘more gradual’ approach to Netflix, lowers estimates

Evercore ISI analysts maintained an Outperform rating on Netflix (NASDAQ:) Monday but lowered the price target to $500 from $550.

The analysts told investors the firm is taking a more gradual approach to the streaming giant, also lowering estimates for the company following recent management comments at an investor conference and very recent ad channel checks.

“At the risk of oversimplifying, we believe that three specific NFLX mngmt comments helped trigger a 10%+ stock tradeoff over the past week: 1) NFLX intends to grow operating margins’ more gradually’ than 3% a year going forward; 2) the advertising revenue business is still in the ‘crawl of the crawl, walk, run stage;’ and 3) the Hollywood strikes are ‘bad for business,’ the analysts wrote.

“We believe the pace of margin expansion for NFLX is being driven more by elective than structural factors, but we are reducing our Operating Margin expansion assumptions for ’24 and ’25 from 3% per year to 2% per year, which reduces our EPS estimates and PT,” they added.

Evercore’s latest channel checks show Netflix having a supply problem, not a demand issue, according to the analysts. However, they believe this will be addressed over time.