Sam Boughedda

Investing.com — Netflix Inc (NASDAQ:)After Jefferies upgraded it to Hold from Buy, shares dropped another 8% Monday.

Andrew Uerkwitz, an analyst at the firm, also reduced the price target for Netflix shares from $737 to $415 per share.

After weaker guidance on subscriber growthLast Friday, streaming company shares plunged 21.7%

In a research note, the Jefferies analyst explained to clients that their prior buy thesis was based upon steady subscription growth and low churn. They believed this would result in operating leverage since content spending steadily hovers at $21 billion.

While we are positive that streaming penetration is in its middle stages, now it seems like the process will take much longer which adds uncertainty. Uerkwitz expressed concern that Netflix was not moving quickly enough in the adjacency area.

He stated that “the best content slate” was not driving sub growth, and the United States (and Canada) “may be ex-growth in the coming year.”

Netflix’s quarter-end guidance and content consolidation, along with slowing subscriber growth at other competitors, “may indicate we might be entering into a period where Netflix and the wider industry will experience a slowing in content spending.”

Although the analyst was cautious about the immediate risks to Netflix, he stated that Netflix has “low churn and unique scale advantages and a strong library of content” and can significantly increase its FCF (free cashflow) without any sub-adds through pricing and smaller/stable budgets.