In a research note to investors that appeared on CNBC.com, Eric Sheridan cited the explosive rise in Netflix's share price, which has more than doubled this year, as the reason behind the downgrade.
“We believe Netflix’s core competencies in both content & tech should drive a virtuous circle of greater sUBScriptions and increased viewing time, broadening its moat for global leadership in sUBScription video-on-demand firms,” wrote Sheridan.
“It’s all priced in," he explained. "While we remain constructive on the business long-term, we view the stock as a less compelling (& roughly equal) risk/reward at current levels, pricing in 5 years of excellent forward operating performance while likely underestimating risk factors from competition, free cash flow burn, and dependence on capital markets for content spending goals.”
But the view isn't entirely pessimistic, as Sheridan did lift his price target on Netflix shares to US$425 from US$375, according to published reports.
Netflix is set to post second-quarter earnings Monday.
Shares were flat in morning trade at US$415.34.