Netflix's stock takes a hit after Citigroup lowers rating, slashed price target
Shares of Netflix Inc. NFLX, -1.59% sank 2.3% in premarket trading Tuesday, after Citigroup changed the analyst covering the streaming video company, who subsequently lowered the rating and slashed the price target. New analyst Jazon Bazinet said current consensus analyst estimates don't reflect the long-term relationship between cash outlays on content and net subscriber additions. "This suggests cash content costs need to rise, or net add forecasts need to fall," Bazinet wrote in a research note. "Our numbers suggest that if content costs rise, Netflix equity could fall 15%. If net add forecasts come down, Netflix equity could fall 5%." He rates Netflix neutral with a $325 stock price target, down from a previous Citigroup rating of buy and price target of $410. Bazinet said while Netflix has done a "masterful job disrupting the pay TV ecosystem," the company's "only enduring advantage" at the moment is scale. He expects Netflix to eventually migrate from a low-cost premium channel that complements pay TV to a consumer's "primary" TV experience. "Then, and only then, will Netflix have the pricing power to show the Street that it's both a disruptor and an attractive equity story," Bazinet wrote. "Until then, it's just a disruptor." The stock has rallied 16% year to date, while the Dow Jones Industrial Average DJIA, -1.41% has advanced 19%.