Investing.com -- Benchmark analysts maintained their Sell rating on Netflix (NASDAQ:NFLX) in a note Friday, citing overvaluation concerns despite raising their price target to $720 from $555.
Benchmark said, “Netflix is executing significantly better than other media companies with major global scaling advantages,” but warned that the stock appears overpriced in the current momentum-driven market.
While Netflix has achieved strong performance, including global subscriber growth and hit original programming such as Stranger Things and Squid Game, the firm says its future growth heavily relies on new initiatives.
Benchmark notes, “Top-line and profitability growth will increasingly depend on pricing and newer initiatives such as AVOD as paid sharing benefits subside.”
The analysts acknowledged Netflix’s innovation in content creation, highlighting its “intelligent sports approach emphasizing special live events” and eclectic programming successes.
However, they added: “This admittedly entails embarrassing flops, likely including a new cookery show from Meghan Markel (NYSE:MKL).”
Benchmark raised concerns about Netflix's valuation, noting that it assumes an optimistic eight-year discounted cash flow model with “Netflix reaching 490M members in 2033 and achieving a ~37% operating profit margin.” The analysts cautioned that this valuation is based on a “normalized 37x P/E for the index,” 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. “Although the global TAMs for TV subscription and high-growth connected TV advertising revenues are substantial, these markets are highly mature,” the analysts stated.