Netflix (NFLX), the global streaming giant, currently faces two significant challenges that could impact its stock. These challenges stem from calls for subscription cancellations by Elon Musk and potential tariffs proposed by Donald Trump.
Musk’s Cancellation Campaign
Recently, Elon Musk, the CEO of Tesla, announced on X (formerly Twitter) that he had canceled his Netflix subscription. He encouraged others to follow suit, emphasizing the need to protect children’s well-being. This social media-driven campaign quickly gained traction, leading many users to share their cancellation confirmations online. As a result, Netflix’s shares dropped by 2% shortly after Musk’s post.
Despite this backlash, analysts believe the long-term impact on Netflix’s earnings will be minimal. The streaming service reported in its Q2 shareholder letter that its major hits account for less than 1% of total viewing time, indicating a diverse content library. Additionally, Netflix has received numerous Emmy nominations, highlighting its strong track record of producing quality content.
Trump’s Proposed Tariffs
In conjunction with Musk’s comments, former President Donald Trump suggested on Truth Social that the current administration plans to impose a 100% tariff on foreign-produced movies. If enacted, this policy could undermine Netflix’s global content strategy.
Netflix currently employs a “local-to-local” production model, crafting content in various languages worldwide. In Q2, over 55% of Netflix’s revenue, amounting to approximately $6.16 billion, was generated abroad. This model has produced major successes like “Money Heist” from Spain and “Squid Game” from South Korea.
Financial Implications
The proposed 100% tariff would significantly increase Netflix’s content costs, with management projecting expenses to exceed $16 billion this year. If foreign productions were to be subject to this tax, it could result in an additional $4.8 billion in expenses by 2025.
However, enforcing such a tariff is expected to be complex due to the multinational nature of film production. Issues such as intellectual property rights and the fragmented nature of production costs complicate definitions of a movie’s origin and taxable value.
Analyst Outlook on Netflix Stock
Despite these challenges, many analysts remain optimistic about Netflix’s future. According to assessments from 36 Wall Street analysts, the average price target for Netflix stock stands at $1,400.69, suggesting a potential upside of 21% from current levels. While Netflix’s price-to-earnings (P/E) ratio is around 50, significantly higher than the sector average of 20, experts believe the company’s growth potential justifies this premium valuation.
Netflix’s commitment to expanding its advertising business and capitalizing on untapped global markets supports a positive growth outlook. Overall, while facing social media backlash and tariff threats, Netflix is expected to navigate these hurdles and continue to thrive.
