Following through on yesterday's big bounce, shares of streaming giant Netflix (NFLX -0.30%) are higher by 5% as of 3:29 p.m. ET Tuesday. No new news surfaced from or about the company. Rather, investors continue to digest a number of factors, including yesterday's upgrade, that will impact the company (and its stock).
If a specific development has to be linked to the week-to-date gain of nearly 17%, it's the combination of a recent upgrade from Citigroup and the recently completed $20 million purchase of Netflix stock by Netflix CEO Reed Hastings. Although Citi analyst Jason Bazinet lowered his price target from $595 per share to $450, he also upgraded the stock from a neutral to a buy, citing the company's pricing power.
Bazinet also feels the stock's nearly 50% rout from November's high to last month's low (including a 22% one-day stumble last month following disappointing fourth-quarter subscriber growth) is rooted in short-term worry that won't persist for the long haul.
And he may well be right. Netflix's pricing power might be superior to other streaming services' pricing power. The recent weakness may merely be temporary, based on a short-term subscriber headwind. The stock's bullishness could be the beginning of a prolonged recovery move.
That's a risky bet, however, in light of several other factors in play right now. Chief among these factors is competition that will test Bazinet's pricing-power assumption.
WarnerMedia's HBO Max and Walt Disney's Hulu and Disney+ are available at a lower price point. While the initial response to their launches was strong, their subscriber growth is slowing as well. Fringe streaming services like Discovery's Discovery+ and ViacomCBS' Paramount+ aren't exactly on the fringe anymore, either. The former boasts 20 million subscribers, while the latter is serving around 47 million direct-to-consumer customers. The streaming market is more crowded than it was just a couple of years ago, and consumers are willing to explore all their options.
This week's big gain from Netflix stock could be solely the result of the massive sell-off suffered since late last year -- a sympathy bounce without any real staying power. It's worth noting that with today's gains, Netflix shares just eclipsed Citi's lowered price target.
At the very least, would-be buyers will want to stay on the sidelines until there's greater clarity as to where Netflix actually stands within the streaming market. The stock may just need time to settle down.