The decline in Spotify and Netflix shares has gone too far, according to Citi analysts. The market underestimates their long-term growth potential. The securities may grow by tens of percent in the coming year, according to the bank.
Shares of the streaming service Netflix rose by 7.98% to $414.38 per paper on the NASDAQ stock exchange as of 18:55 Moscow time. Spotify securities immediately rose by 10.4% to $191.
The growth of securities was observed after Citi analysts raised their recommendations for both stocks, saying that the market underestimates their long-term growth potential. Citi believes that the stock sales of streaming services Spotify and Netflix have gone too far, CNBC writes. Citi analyst Jason Bazine recommended buying Spotify and Netflix shares, but at the same time lowered the target levels for both securities.
Shares of companies whose business is based on subscriptions have been under significant pressure in the last month. Due to investors' concerns about the slowdown in the growth of the number of paid subscribers to streaming services, Spotify shares have fallen by 22% over the past month, and Netflix securities have lost about 30% of their value.
In particular, Netflix shares fell by 20% at auction on January 21 after the publication of the report for the fourth quarter of 2021, which predicted a much smaller than expected increase in subscribers in the first quarter. From January to March, the company expects an increase in subscriptions by 2.5 million. Analysts surveyed by Refinitiv expected that the forecast of growth in the number of users of the world's largest streaming service from January to March would be 5.9 million customers.
Although Netflix and Spotify may have more modest growth in the number of paid subscribers, they have additional ways to increase revenue in the coming years, according to Citi. So, Netflix can increase the subscription price. As for Spotify, the company can improve monetization by selling ads.
Despite the optimistic forecast and the recommendation to buy securities, the target for Spotify shares was lowered by Citi analysts from $275 to $240 in the future of the year, and the target for Netflix securities decreased from $595 to $450. These targets are about 39% and 17%, respectively, above the closing level of the shares on Friday.
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