Wells Fargo downgrades Netflix on higher content investment and decelerating revenue

Wells Fargo thinks that Netflix plans to focus on boosting engagement with more content spending in the near term. The bank resumed coverage of Netflix with an equal weight rating and $105 price target, implying that shares could rise 6% from here. The bank had previously had an overweight rating to the stock. Analyst Steven Cahall wrote that his price target is at a slight discount to Netflix’s historical five-year average, as he expects a decelerating revenue profile and period of higher content investment. “We think competition is keeping investment elevated, and as a result, we expect NFLX to trade at slight discount to its [historical] P/E valuation as the market looks for clues of a verifiable engagement accel,” he wrote. NFLX 1Y mountain NFLX 1Y chart Cahall expects Netflix to rebound from its saga with Warner Bros. Discovery, with Netflix ultimately choosing to walk away from the deal , by aiming to accelerate its engagement with more content. “Now that the WBD saga has ended, we think the scars on NFLX’s stock can begin to heal. Investors had wondered if mgmt’s interest was sparked by a slowing core biz, with fears exacerbated by 2h’25 engagement stats,” he wrote. “We think WBD was NFLX’s opportunistic Plan B, and now it’s back to Plan A: invest for growth.” In a recent press release, Netflix also noted that it plans to invest around $20 billion on content this year. Cahall expects Netflix to be more aggressive on both its annual rate of content growth and the forms of allocation, especially putting more focus on sports. The analyst also suggested that going forward, Netflix concentrate on creating a hands-on development process such as Warner Bros. Discovery’s HBO. “If there’s a lesson for NFLX, it’s that it should build an internal HBO focused only on quality originals ( & /or look for small indie studios w/ that kind of DNA),” Cahall said. Shares of Netflix have added 6% this year and 11% over the past 12 months.