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Why Goldman Sachs and Raymond James Downgraded Netflix

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Stock price performance

Netflix stock (NFLX) declined 1.89% on October 15 after Goldman Sachs and Raymond James slashed their price targets on Netflix on concerns of rising interest rates. The move came just ahead of the company’s third-quarter earnings results after the closing bell on October 16.

Netflix stock has not been doing well recently. It has fallen more than 10% this month as of October 15 amid a broader market sell-off last week due to concerns surrounding rising interest rates, ongoing US-China trade tensions, and tighter monetary policy.

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Price target slashed

Amid heavy selling in Netflix along with many major tech stocks and broader market indexes, Goldman Sachs and Raymond James have cut their 12-month price target forecasts on Netflix, as they fear that the rising interest rates will erode the streaming giant’s valuation.

Despite having a positive stance on Netflix’s upcoming Q3 earnings results, Goldman Sachs has reduced its price target from $470 to $430. Raymond James has also lowered its price target for Netflix stock to $400 from $445, citing sluggish streaming growth. Nevertheless, Raymond James analyst Justin Patterson also remains optimistic about Netflix. Meanwhile, on October 12, Citigroup believed investors should buy the stock after last week’s sell-off. Citi has a $375 price target on Netflix.

Competition in the video streaming market

Netflix posted weaker-than-expected subscriber growth in the second quarter and added 5.2 million subscribers, missing the company’s expectation of 6.2 million subscriber additions. The total global subscriber base of the company was more than 130 million at the end of the second quarter.

Netflix is facing rising competition in the online video streaming space. Like Netflix, Hulu and Amazon (AMZN) Prime are also investing billions in acquiring original content to attract customers and are expected to triple their combined investments in originals by 2022, spending $10 billion annually, according to the Diffusion Group. Apple also plans to allocate more than $4 billion to original content in 2022 from $0.5 billion in 2017, according to projections by Venture Capital firm Loup Ventures.

Facebook (FB) allocated around $1 billion last year to acquire new content. Walt Disney (DIS) and Walmart (WMT) also have plans to launch their video streaming services, thus raising competition for online streaming giant Netflix.

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