Seaport Global Securities analysts downgraded Netflix (NASDAQ:NFLX) from Buy to Neutral. The analysts explained the downgrade by noting that Netflix has rapidly reached the recently increased price target of $576. They questioned the potential for further buyer interest and their motivations, considering the current valuation.

The analysts attempted to separate Netflix’s share valuation from the excitement around its advertising opportunities and then assessed a range of values for the ad business based on different margins and market share assumptions, comparing base and aggressive scenarios.

The analysts concluded that even in the most optimistic scenario – where 65% of incremental margins are achieved, and 50% of subscribers opt for the ad tier with current TV time usage share extending to 2027 – the potential upside is approximately 6%. This is based on their estimation of Netflix’s unaffected share price value at around $271.

The analysts noted that the valuation has been significantly lifted by the perceived advertising opportunity, pushing it far beyond typical ranges. The analysts pointed out that, under current pricing, the implied growth rate is about 6.7%, compared to his base estimate of 3%, and considers an ad market that historically grows around 4%, with their calculations including market share gains.

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