What happened
Shares of Netflix (NASDAQ: NFLX) fell on Friday, following bearish analyst remarks. By the close of trading, the streaming leader's stock price was down more than 5%.
So what
Goldman Sachs analyst Eric Sheridan placed a sell rating on Netflix's shares. He also slashed his price forecast from $265 to $186, in part because of what he views as worsening economic trends.
Sheridan is worried that the U.S. economy could soon fall into a recession. That could drive people to pull back on spending, such as by pairing back their streaming subscriptions. Netflix might find it harder to add subscribers in this scenario, while also losing more customers to cancelations.
At the same time, Netflix is facing intensifying competition. Formidable rivals -- including Disney, Amazon.com, and Apple -- are ramping up their content acquisition efforts. That is likely to force Netflix to keep its content spending levels high, which would keep pressure on its profit margin, or risk falling behind its competitors.
Now what
Netflix is already struggling with subscriber losses. The company lost 200,000 paying customers in the first quarter. Worse still, management sees its subscriber base declining by another 2 million accounts in the second quarter. If Sheridan is correct and the U.S. economy contracts in the coming months, those figures could prove even worse than Netflix projected.
These subscriber trends have weighed heavily on Netflix's stock price. Its shares are now down more than 70% from their highs back in November. But if the streaming giant continues to shed subscribers, Netflix's stock could have further to fall.
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