Netflix (NFLX.US) was downgraded twice in a week: HSBC names YouTube competition, and rich countries are concerned about participation and content strategies

The Zhitong Finance App learned that HSBC analyst Mohammed Kalouf downgraded streaming giant Netflix (NFLX.US)'s rating from “buy” to “hold” and cut the target price by 21% to $76. He believes that the growth of YouTube under Google (GOOG.US, GOOGL.US) has been at the cost of Netflix's losses, and Netflix's user engagement seems unlikely to recover in the short term.

In the report, Kalouf said, “In our opinion, YouTube has benefited from the decline in ratings of Netflix's original content. The shift in strategy has further intensified competition.” He mentioned that YouTube is committed to providing direct funding, higher share, and priority marketing to creators in exchange for exclusive content.

Additionally, YouTube is improving features to mimic Netflix series. Kalouf pointed out that these measures have further blurred the boundaries between video sharing platforms and traditional screenplay streaming media, and may drive up the cost of Netflix building a content library for competitive creators.

Kalouf also said Netflix's “industry-leading” subscription retention rate is facing increasing resistance due to streaming fatigue and “weakening the appeal of original content.” Netflix won significantly fewer Emmy Awards this year, the lowest since 2016; Rotten Tomatoes website users also rated their latest series 7% lower than in previous seasons.

“User engagement is critical because it increases retention, enhances pricing power, and is closely watched by advertisers,” he said in the report. We are now seeing downward pressure on user retention due to the weakening appeal of original content and increasing consumer fatigue from streaming media. ”

This is the second time in less than a week that Netflix's rating has been downgraded. Wells Fargo previously downgraded Netflix's rating from “holding” to “reducing holdings,” and the target price was lowered from $80 to $57, citing concerns that its declining user engagement and content strategy would put pressure on profit margins.

By the close of the US stock market on Tuesday, Netflix closed down 1.64% to $72.16. The stock is down 23% cumulatively since this year.