Netflix's slowing growth could be bad news for streaming rivals, top analyst says

Published Fri, Jan 21 20228:59 AM ESTUpdated Fri, Jan 21 20229:21 AM EST

Jesse Pound @/in/jesse-pound @jesserpound

The disappointing outlook from Netflix could mean trouble for its streaming rivals as well, according to one of Wall Street's top media analysts. Shares of Netflix were down more than 19% in premarket trading Friday, after the streaming giant gave first-quarter subscriber guidance that came in well below expectations . The quarterly report led to a rash of downgrades and price target cuts from Wall Street analysts . MoffettNathanson analyst Michael Nathanson, who has a neutral rating on the stock, said in a note to clients on Friday that the news from Netflix would make it harder for investors to pay top prices for shares of other streaming services. "We see this Netflix quarter as a worrying datapoint for the rest of the streaming industry on multiple fronts. ... The sell-off in Netflix's equity makes it much harder to use as a bullish comp in the media world. Over the course of the past few months, Netflix's stock price has declined from $700 to $400, which obviously makes it much harder to drive the [sum of the parts] models for Disney , ViacomCBS or Discovery ," the note said. Streaming stocks as a whole were under pressure on Friday morning. Shares of Disney were down more than 3% in premarket trading, while Discovery and ViacomCBS slipped more than 2%. Beyond the near-term valuation concerns, the expected slowdown in Netflix's growth highlights the difficulty of the streaming business model as a whole, Nathanson said. "Netflix and other streamers have to continuously spend on new content to grab and hold new members, with any slow down in that spend resulting in a softer quarter for net adds. ... The business model is much more capital-intensive than most other models we have seen and the market is not appropriately valuing streamers by ignoring the cash cost of content," the note said. Nathanson cut his price target for Netflix to $375 per share from $460 per share. The new target is 26% below where the stock closed on Thursday. -CNBC's Michael Bloom contributed to this report.

A woman starts Netflix on a TV inside her apartment.

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The disappointing outlook from Netflix could mean trouble for its streaming rivals as well, according to one of Wall Street's top media analysts.