Netflix (NFLX) stock fell 1% Monday morning after JPMorgan analyst Doug Anmuth downgraded the stock to Neutral from Overweight, even as he raised his price target to $1,220 from $1,150.
Anmuth pointed to Netflix’s elevated valuation as the key reason for the downgrade. The stock, currently trading at record highs, is up more than 30% since the start of the year and has surged nearly 400% since October 2022 — far outpacing the S&P 500’s (^GSPC) 60% gain over the same period.
“To be clear, there’s no change to our long-term bullish view on NFLX’s streaming leadership position & the company’s potential to effectively become global TV over time,” Anmuth said. “However, more near-term, following significant stock price appreciation & outperformance, we believe the risk/reward in NFLX shares is becoming more balanced.”
So far this year, Netflix has been viewed as a defensive name within Big Tech amid broader concerns over rising costs driven by tariff uncertainty, regulatory scrutiny, and a potential slowdown in advertising revenue. However, recent improvements in U.S.-China trade relations have lifted sector sentiment, which could prompt investors to rotate into names that have been more beaten down.
“NFLX shares have been defensive, but if tariff & macro concerns continue to ease, we would expect rotation into other Internet names & parts of the market that have been more vulnerable & pressured,” Anmuth said, suggesting Amazon (AMZN) and Meta (META) as possibole beneficiaries.
Additionally, the analyst noted that Netflix is entering the typically slower summer season, which could weigh on momentum, especially with fewer near-term catalysts on the horizon.
Historically, Q2 has been a challenging quarter for the company. Although Netflix no longer discloses subscriber numbers, JPMorgan estimates 4.5 million net additions this quarter, including 750,000 in the US and Canada.
Still, there are reasons for optimism in the year ahead.
During last week’s Upfront presentation, Netflix announced its ad-supported tier has reached 94 million global monthly active users, up from 70 million in November. The company also noted strong engagement among US ad-tier members, who are watching approximately 41 hours of content per month, on par with those on the ad-free plan.
Advertising remains a potential upside catalyst for Netflix’s stock, with JPMorgan analyst Doug Anmuth acknowledging this could be where his downgrade proves too cautious. JPMorgan estimates Netflix’s ad-tier revenue will more than double this year to $3 billion, up from $1.4 billion in 2024.
