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Analyst: Fears of Netflix's Rising Competition Are "Overblown"

Before Netflix's (NASDAQ: NFLX) quarterly update on Wednesday, analysts have been busy updating their price targets on the streaming TV giant's shares. The latest analyst to update his view for the company is lowering his 12-month price target for the stock, but he still thinks shares will appreciate significantly over the next 12 months. Further, the analyst believes fears about competition are "overblown."

With Netflix shares down 24% in the past three months, recent analyst reports come at an interesting time. Is this a buying opportunity? Or is Netflix going to see challenging times as competition heats up?

A young couple watching TV and eating popcorn.

Image source: Getty Images.

Could Netflix stock rise to $400?

On Monday, Morgan Stanley analyst Benjamin Swinburne lowered his price target for Netflix by $50 to $400. But he remains bullish on the growth stock, with an overweight rating for shares. His $400 price target implies more than 40% upside from the stock's $283 price at the time of this writing.

In his update on the stock, Swinburne notes that the market is being particularly cautious about its outlook for the company. The analyst admits there may be some near-term risk that the company's paid net member additions could fall short of management's own guidance.

Nevertheless, Swinburne sees the stock's recent decline as unjustified -- at least when viewed in the context of the company's long-term potential. Fears of increasing competition's impact on Netflix business are "overblown," he believes.

Both Apple and Walt Disney are launching streaming services in November. Netflix CEO Reed Hastings said in a recent interview that "it's a whole new world starting in November."

Be patient

While analyst commentary and price target changes may tempt investors to take quick action, nothing is wrong with employing patience.

Shares of Netflix are, indeed, starting to look attractive again. But there's no harm in waiting to see how the company executed in Q3 -- and what management is thinking about in terms of competition.

Who knows? Maybe shares will sell off further after earnings, giving investors an even better buying opportunity. The risk of waiting, of course, is that shares rebound from here and never return to these levels. But for investors who aren't sure if the stock's valuation is attractive enough, it's worth waiting to see if a better buying opportunity presents itself.

For Netflix's third quarter, management guided for 7 million net paid member additions, with 0.8 million coming from the U.S. and 6.2 million internationally. Given that member growth at this level would be greater than the 6.07 million subscribers the company added last year, achieving this target would be an encouraging sign of a robust market for further expansion.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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