The Netflix Analyst
Laura Martin maintained an Underweight rating on Netflix.
The Netflix Thesis
Netflix's U.S. revenues do not rise with additional viewing hours by subscribers, as the company charges a fixed price of $9-$16 per month in the U.S. irrespective of the number of hours watched, Martin said in a Tuesday note.(See her track record here.)
The company needs to offer an ad-driven tier, which would allow shareholders to participate in any revenue upside stemming from more viewing hours, the analyst said.
Offshore Netflix revenue may be at risk, as international churn is likely to rise given that Netflix is a luxury, she said.
Netflix's negative free cash flow profile necessitates accessing capital, and since the company has a junk bond credit rating, its cost of capital rises faster in times of uncertainty, Martin said.
When lenders price a company's debt, they look at how much of a cushion they have based on the market value of the stock, the analyst said.
"This cushion falls with NFLX's share price."
Netflix Price Action
After Monday's 6.09% pullback along with the broader market, Netflix shares were rising 1.79% to $352.68 at the time of publication Tuesday.