Shares of Netflix (NASDAQ: NFLX) tumbled during trading on Tuesday after being downgraded by UBS Financial Services (NYSE: UBS). The company cited concerns of overvaluation, believing that the pandemic boost may already be priced in.
Netflix shares tumbled overnight during after-hours trading, losing 1.6% of its closing price by the beginning of trading on Tuesday. There was no recovery in sight for Netflix, ending the day just below its Monday closing price and failing to top said price during trading. At the time of writing, Netflix stock slipped again during aftermarket trading, being down an additional 0.8% by 6:30 in the evening.
UBS' downgrade comes when Netflix is seemingly having runaway success amid a surge of use during the coronavirus. That runaway success may already be priced in according to Eric Sheridan, an analyst for UBS.
"Investor fears seem to have disappeared and the current stock price increasingly reflects many of the long-term business moat dynamics," said Sheridan. "we would rather be constructive at levels when a mix of potential subscriber volatility, FCF dynamics & competition are better reflected in the share price."
Sheridan's trepidation is understandable, given the increasing competition in the streaming market and the mere fact that Netflix's bull run is limited by how much longer consumers will be stuck indoors. As the pandemic eases and consumers can leave home more safely, the company could very well see subscriber numbers decline back to pre-pandemic levels.
Other Wall Street experts share this belief, with a growing number of analysts becoming more cautious with Netflix's success in 2020. Wedbush Securities pointed to Netflix's significant expenditures on content creation as a potential downside of the company, while also warning of increasing competition.
Rosenblatt Securities wrote that it was also struggling to find an upside, and had similar concerns that Netflix's bull run may not last for much longer.
Despite the bearish analysis of several firms, many experts still have favorable opinions of Netflix. Of the 33 analysts that have provided ratings of Netflix, the majority have issued buy and strong buy ratings. Netflix will release its report for the second quarter on Thursday, which may painter a clearer picture of the company's situation, and tell if its runaway success will continue for a while longer.