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Netflix stock downgraded to ‘Sell’ by Goldman Sachs analysts

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Yahoo Finance’s Allie Canal joins the Live show to discuss Netflix’s stock downgrade, expectations for the future of the streaming company, recessionary risks, and the outlook for growth.

Video Transcript

- We've been following the NASDAQ closely all day. The NASDAQ 100 closing at its lowest level since November of 2020. But some of the biggest winners during the height of the pandemic are now some of the biggest losers. Take a look at shares of Etsy. Etsy down 66% so far this year. You just saw Wayfair there, the worst of the bunch. Those shares plunging 75%. And then of course Snap, the parent company of Snapchat, off 74%. Though still a lot of tech carnage there that we're seeing.

Well, speaking of tech, Netflix stock has plummeted more than 70% year to date amid a broader market sell off that slammed growth stocks and fueled talks of recession. But should investors buy the dip? That's the question. Yahoo Finance's Alexandra Canal joins us now with the latest. Ali, what's your take?

ALEXANDRA CANAL: That is the question, Rochelle. But it's not really an easy answer. We saw shares close down more than 7% today. As you mentioned, down over 70% year to date. And there's broader questions here about the future of Netflix. We're well off of those record highs that we saw in 2021. This has long been viewed as a blue chip stock. But it's been severely beaten amid this current sell off in Wall Street. It really seems to be split. I spoke with several analysts. Half of them say this is an excellent opportunity to buy.

The other half says you really should sell. We saw Goldman Sachs downgrade the stock to a sell from neutral last week. We have major hedge funds like Tiger Global, Winslow Capital selling off their Netflix shares last month. I just spoke with Nat Schindler from Bank of America. He has an underperform rating on the stock and told me that he has some serious concerns when it comes to that free cash flow, the amount of money that they're spending on content.

But then again, we have some of those bulls, like Santosh Ralph of Manhattan Venture Partners. He told me that the worst is priced into the stock right now and that they need to continue to focus on content, content, content. We know that's there. Netflix officially confirming this weekend that "Squid Games" season two got the greenlight. They said it on Twitter. I'm very excited about that. But I think everyone can agree that they need to be a little more cautious and a little more strategic when it comes to the amount of money that they're spending on content right now because at the end of the day, profitability is really key.

- You're excited about that, are you, Ali? I never got through "Squid Game" one. I think I made it through about three episodes. That was a unique show. Not my personal favorite. But these analysts, what are they telling you to look out for that'll give you a better indication of where Netflix is headed?

ALEXANDRA CANAL: Yeah. "Squid Game" is a very heavy show. So I don't blame you. But, yes, there's a lot of talk right now when it comes to what really we should be looking for moving forward. I think growth stocks are being hit really hard across the board. And it's really no longer about the number of subscribers, but really the stickiness of those subscribers. How often are they on your platform? How are they interacting with your platform, engaging with the platform? Because

Within this current environment, it's not really fair to compare the number of Netflix subscribers today to what we were seeing during the pandemic in 2020, even 2021, when we saw those record highs. Right now, we have inflation. There's talk of a consumer recession. People are cutting costs every which way. So this environment that we're in today is much different than years past. And I think for Netflix, the biggest question is why the stock is down so much. Yes, we have this larger sell off. But some analysts do think that it's a fundamental problem.

So I think time will tell here. I think a key thing to watch will be that crack down on password sharing, that ad-supported model that's supposed to hit the market at the end of this year, what kind of an impact we will see. I think there is potential upside. But will it be significant enough to offset those sky-high costs? So I just think being patient is key for investors and really thinking about what Netflix is telling you, right. Paying attention to that guidance I think is also going to be important moving forward.

- All right. Well, Netflix shares closing off just around 7% today at $1.69 a share. Ali Canal, thanks so much.