Netflix (NFLX.US) beats expectations but Citigroup highlights two risks
1min read Zhitong Finance APP noticed that Netflix's (NFLX.US) third-quarter earnings beat expectations, driving the stock of the streaming giant higher and boosting bullish sentiment, but Citigroup remains neutral on the stock.
Jason Bazinet, managing director, said, "The (Netflix) fundamentals are really good, so there's nothing to pick. I'm a little bit concerned about what I call the change in the stock market bull.
Bazinet explained that the bull's threshold is getting higher as the stock multiple expands at an accelerating pace. "When I started hearing this, I was uncomfortable, because when you do this multiple expansion, you usually need an accelerating revenue line. As we've grown, Netflix's revenue has actually slowed. They grew 15% this year and they expect to grow 11% to 12% next year."
The analyst said another area to watch is the growth in user engagement. "They said their engagement went up, but it only went up 1%, so the question is, they spent a lot of money on content, but they didn't get the response on the deeper engagement side."
He added: "It's not really about how much they're spending. I think it's more about the functionality of whether they're spending money on the right things to keep consumers connected to Netflix, to increase these engagements, and then allow Netflix to take price."
