What do Netflix Inc. and eBay Inc. have in common?
Both are particularly sensitive to weakening macroeconomic trends that threaten to pressure consumer spending, according to Goldman Sachs analyst Eric Sheridan. He downgraded the two stocks to sell from neutral late Thursday, while making a handful of other changes across his coverage of internet companies.
“In terms of risk factors that we continue to monitor, the overall global consumer landscape remains our top focus for rate of change analysis (low-end consumer in U.S., energy price inflation in Western Europe & supply chain constraints even if demand is stable),” Sheridan wrote in a note to clients.
On Netflix NFLX, -4.73% specifically, he worries about the possibility of a consumer recession, as well as competitive dynamics in the streaming industry. He thinks Netflix is currently a “show-me story” and that the company has few positive catalysts in store over the next six to 12 months.
Sheridan cut his price target to $186 from $265 on Netflix’s stock, which is off more than 5% in Friday’s session.
EBay EBAY, -4.12% also faces risks from the evolving macroeconomic picture, according to Sheridan.
“With the global consumer environment under pressure and e-commerce growth slowing in a post-pandemic world, we see eBay’s forward GMV [gross merchandise volume] and revenue growth at risk esp. given its overexposure to international markets and as recently launched growth initiatives (e.g., focus categories) not having scaled yet and require incremental investments,” he wrote in a note to clients.
He reduced his price target on eBay shares to $42 from $52. The stock is off 4% in Friday morning trading.
Sheridan also moved to a bearish stance on Roblox Corp. RBLX, -8.79%, which he said benefited significantly during the pandemic from its “open-world” theme and a resonance with younger users.
That backdrop is “why we have heightened levels of concern around tough comps ahead (relative to the rest of the group),” Sheridan wrote, while noting that he was also lowering his bookings estimates to factor in the potential for a worsening macro climate. Comps refers to year-over-year comparisons.
Shares of Roblox are falling more than 7% in Friday’s session and recently changed hands a few cents north of $28, which was Sheridan’s new price target on the stock after he lowered it from $39.
He moved his rating to neutral from buy on shares of GoodRx Holdings Inc. GDRX, -6.06%, writing that the change reflects “lower valuation multiples given increased uncertainty around consumer demand trends.”
Additionally, Sheridan will “wait to gain better line of sight around timing of the grocer headwinds abating.” GoodRx acknowledged during its last earnings report that a grocer recently took actions that ended up affecting acceptance of discounted pricing for some drugs from pharmacy-benefit managers.
Its shares were down more than 6% in Friday’s session as Sheridan trimmed his price target to $12 from $19.