Pivotal Research analyst Jeffrey Wlodarczak reduced his year-end 2020 price target for Netflix (NFLX) shares to $350 from $515 to reflect "materially higher than forecast" market content cost inflation.
Big internet players appear to be ramping their spend significantly on advertising as we enter the inflection point where over-the-top growth accelerates materially, mostly at the expense of traditional PayTV, Wlodarczak tells investors in a research note. Against this backdrop of accelerating industry spend, the right move for Netflix is to also materially accelerate their spend to keep its "sizeable" content lead on its peers, increase the barriers to entry for new potential entrants, and maintain subscribers, says the analyst. He now assumes an annual cash outlay on programming of $35B in 2025, up from $30B previously.
Nonetheless, Wlodarczak keeps a Buy rating on Netflix shares. The good news is that with the recent significant stock pullback, sentiment in Netflix "is awful," says the analyst. He believes the stock is now positioned to "potentially climb a wall of worry" around the launch of Disney + (DIS) and AppleTV+ (AAPL).
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