Netflix Inc. experienced a slight pullback in its share price on Wednesday, following remarks from Wedbush analyst Alicia Reese, who, despite maintaining an outperform rating on the stock, expressed a slightly tempered outlook for the streaming video giant. Reese, who has been bullish on Netflix for at least the past three years, raised her price target to $725 from $615, making it one of the highest targets among analysts covering the stock.
Despite the slight dip in share price, Netflix’s stock had shown resilience, closing on Tuesday at its highest level since November 30, 2021. Although the stock retreated by 2.5% during Wednesday’s afternoon trading session, it remained on track for its sixth consecutive monthly gain, having risen by 1.8% in March. This streak of monthly gains would mark the longest winning streak since April 2020.
Reese’s optimism regarding Netflix’s continued strong quarterly performance is rooted in several factors. She anticipates that the growth in advertising-tier pricing will help mitigate churn, while also foreseeing ample opportunities for the expansion of advertising revenue and sustained subscriber growth. Reese believes that Netflix has effectively struck a balance between global content creation, cost management, and increasing profitability, which she views as a positive aspect for the company’s stock.
However, despite these positive fundamentals, Reese made the decision to remove Netflix’s stock from Wedbush’s “Best Ideas List.” This list typically features top picks from each analyst, which are then scrutinized by the brokerage’s investment committee. The removal suggests a more cautious approach from Wedbush, possibly reflecting the notion that Netflix’s stock may have already experienced significant growth over the past year, leading to a more conservative stance moving forward.
In summary, while Reese maintains her positive outlook on Netflix’s prospects, the decision to remove the stock from Wedbush’s “Best Ideas List” signals a nuanced assessment of the company’s future trajectory, acknowledging both its strengths and potential challenges in the evolving streaming landscape.
Wedbush analyst Alicia Reese cited several reasons for removing Netflix from Wedbush’s “Best Ideas List,” one of which was the deceleration in growth compared to previous quarters, despite expectations of subscriber increases for the first and second quarters compared to the previous year. Despite this positive outlook for subscriber growth, Netflix’s stock has already surged by 87.3% over the past 12 months, significantly outperforming broader market indices such as the Communication Services Select Sector SPDR ETF, which rose by 44.3%, and the S&P 500 index, which advanced by 31.3%. Reese noted that much of the optimism surrounding Netflix’s growth prospects may have already been factored into its stock price.
Given the substantial appreciation in Netflix’s stock price, Reese believes that meeting or exceeding investors’ lofty expectations will become increasingly challenging for the company in 2024. This heightened level of expectation creates a higher bar for Netflix to impress investors going forward, leading Reese to adjust her outlook on the stock.
Consequently, while Reese maintains a positive view on Netflix’s overall prospects, she no longer considers the company a top pick for Wedbush’s “Best Ideas List” due to the heightened difficulty of surpassing market expectations. This shift in perspective underscores the evolving dynamics of Netflix’s position in the market and the challenges it faces in sustaining its impressive performance.
Despite removing Netflix from the “Best Ideas List,” Reese has identified another company that still holds that distinction: Imax Corp. Imax’s stock has experienced a decline of 12.8% over the past 12 months, contrasting with Netflix’s significant upward trajectory. This suggests that Reese sees potential value and opportunity in Imax Corp., despite its recent stock performance, and believes it warrants continued attention from investors.