Netflix is facing growing competition from YouTube for viewers' time. On September 22, HSBC analyst Mohammed Khallouf downgraded Netflix from Buy to Hold and cut the price target from $96 to $76, citing pressure on net profit and YouTube's continued gains in audience share.
Netflix shares fell more than 2% to $71.76 in Tuesday afternoon trading in the U.S. The stock was down more than 23% year to date. The downgrade has refocused attention on the contest for viewing time between streaming platforms, and on whether content spending can translate into sustained engagement and earnings growth.
YouTube Takes 14.2% of U.S. TV Viewing
In a report to clients, Khallouf said YouTube was benefiting from weaker audience acceptance of Netflix original programming, while a meaningful recovery in Netflix engagement appeared limited in the near term. For Netflix, whose business is built primarily on subscriptions, a decline in viewing time could affect renewals and reduce the platform's ability to monetize spending on advertising, content acquisition and production.
YouTube accounted for a record 14.2% of television viewing in the United States in July, according to the data cited in the report. Netflix's share fell to 7.8%, a multi-year low. The divergence shows that YouTube is expanding its role on the living-room screen, with part of that growth coming directly at the expense of time previously spent watching Netflix.
Netflix Moves Into YouTube's Content Territory
Netflix has increased its investment in video podcasts, live sports and other content outside traditional film and television in an effort to capture more viewing time. Those offerings increasingly overlap with areas long covered by YouTube, requiring Netflix to keep investing beyond subscription series in formats that can generate frequent viewing.
Khallouf nevertheless said recent market reception for Netflix original content remained weak, making a clear near-term recovery in engagement difficult. YouTube continues to increase its use on connected televisions through a broad mix of creator content, video podcasts and user-uploaded videos. The rising share of Alphabet-owned YouTube has become a competitive factor in expectations for Netflix's valuation and profitability.
Downgrade Signals Caution on Earnings
The move from Buy to Hold does not amount to a broad rejection of Netflix's business prospects. However, the $20 reduction in the target price indicates a more cautious view of the company's near-term earnings performance and user engagement. Netflix's share price was already below the new $76 target on September 22, leaving investors focused on the performance of original programming, changes in viewing time and whether spending on sports and video podcasts can generate sufficient returns.
The key figures are clear: YouTube's share of U.S. television viewing reached 14.2%, while Netflix's fell to 7.8%; Netflix shares stood at $71.76 on the afternoon of September 22, down more than 23% for the year. Reversing the decline in viewing share will depend on Netflix's subsequent content performance and earnings data.