Netflix' (NFLX) valuation does not fully reflect its long-term growth potential, Morgan Stanley wrote in a note e-mailed Tuesday, saying engagement concerns are largely overblown.
Investor sentiment toward Netflix has deteriorated in the last few months amid concerns about slowing engagement, increased churn following a price hike in March and higher spending, according to Morgan Stanley. The streaming giant's stock has lost 22% in value so far this year.
"We do think engagement concerns are largely overblown and see the potential for the live events/sports slate in the (second half) to show some improvement," Morgan Stanley wrote.
Although third-party data indicate a "larger than usual spike" in churn in the US following recent price increases, the firm said its survey suggests Netflix continues to have the strongest perceived original content and continued long-term pricing power.
"We continue to find shares undervalued relative to the growth, but acknowledge a tricky catalyst path," the firm said.
Wedbush Securities also flagged concerns about Netflix engagement, but said a ramp in advertising revenue "outweighs the engagement debate," according to a note from Monday.
Morgan Stanley kept its overweight rating on Netflix intact, though it lowered the price target to $90 from $115 ahead of the release of the streaming giant's second-quarter results on Thursday.
The FactSet-polled consensus indicates second-quarter earnings per share of $0.79 on revenue of $12.58 billion.
Morgan Stanley expects Netflix's quarterly results and its outlook for the third quarter to be largely in line with expectations. The company will likely affirm its 2026 guidance, the brokerage said.
Price: $73.67, Change: $-0.16, Percent Change: -0.22%
