Netflix's Valuation in Question: Benchmark Warns of 20% Potential Loss
Friday, Jan 3, 2025 12:31 pm ET

Netflix (NFLX) has been a darling of the streaming world, but recent concerns from analysts at Benchmark have investors questioning its valuation. In a note to clients, the firm maintained its "Sell" rating on Netflix, citing overvaluation and a potential 20% downside risk. Despite raising its price target to $720 from $555, Benchmark warned that the stock's high price is not sustainable on momentum alone.
Netflix has been executing significantly better than other media companies, with global scaling advantages and hit programming like Squid Game and Stranger Things. However, the firm cautioned that the company's future growth will increasingly depend on new initiatives such as advertising-supported video on demand (AVOD) and pricing strategies, as the benefits from paid account sharing decline.
Benchmark acknowledged Netflix's innovative approach to content creation, including live sports and eclectic programming successes. However, they also noted the potential risks, such as the highly publicized cooking show by Meghan Markle that could become a flop. Additionally, the analysts raised concerns about Netflix's valuation model, which assumes an optimistic eight-year discounted cash flow model with 490 million subscribers in 2033 and a 37% operating profit margin. This projection is based on a high P/E ratio of 37x, significantly higher than the Nasdaq 100 median of 23.5x.
In a broader context, Benchmark highlighted risks to Netflix's stock if tech-heavy indices face a sell-off. While the global total addressable markets for TV subscription and high-growth connected TV advertising revenues are substantial, these markets are highly mature. The analysts stated that although Netflix's global TAMs are substantial, these markets are highly mature, and the company's stock could face headwinds if tech-heavy indices sell off.
As an investor, it's essential to consider these concerns and weigh the potential risks and rewards of Netflix's valuation. While the company has demonstrated impressive growth and innovation, the sustainability of its growth rates and the potential for reduced licensing deals from competitors could impact its content strategy and market position. As always, it's crucial to do your own research and make informed decisions based on your risk tolerance and investment goals.