A button for launching the Netflix application is seen on a remote control in this photo illustration in Warsaw, Poland on April 25, 2019.
Citi has a new Netflix analyst and he's joining the minority of Wall Street analysts that are cautious on the stock.
The firm transferred coverage of Netflix to analyst Jason Bazinet. He started with a neutral rating and a $325 per share price target. Citi's previous analyst covering the stock had a buy rating. Of the 43 analysts that cover Netflix on the Street, 27 recommend buying the stock, 12 have a hold rating and four have a sell rating, according to FactSet.
"Street estimates [are] too high," Bazinet said in a note to clients on Tuesday.
Over the last seven years, there has been a correlation between spending on content and new added subscribers, the analysts points out. But Wall Street forecasts now on Netflix "deviate" from this long-term pattern. The new Netflix analyst therefore said either Netflix needs to spend even more on content or subscriber estimates need to fall on Wall Street.
Bazinet said either one of those scenarios is not good for the stock. If they spend up on content, it will hurt margins and cause the stock to drop by 15%, he calculates. Whereas, a slowdown in subscriber additions is the lesser of two evils, causing a 5% pullback in the stock.