Netflix (NFLX.US) downgraded twice in a week: HSBC cites YouTube competition, Wells Fargo worries about engagement and content strategy.

HSBC analyst Mohammed Khallouf downgraded streaming giant Netflix (NFLX.US) from Buy to Hold and cut his price target by 21% to $76. He believes that the growth of Alphabet Inc. Class C (GOOG.US, GOOGL.US)'s YouTube is coming at Netflix's expense, and that Netflix's user engagement is unlikely to recover in the near term. "To us, YouTube is benefiting from a decline in viewership of Netflix originals. The strategy shift further intensifies competition," Khallouf said in a report. He noted that YouTube is committed to offering creators direct funding, higher revenue shares, and priority marketing in exchange for exclusive content. In addition, YouTube is improving features to mimic Netflix-style series. Khallouf pointed out that these moves further blur the line between the video-sharing platform and traditional scripted streaming, and could drive up the cost for Netflix to build a competitive library of creator content. Khallouf also said that due to streaming fatigue and "weakening appeal of original content," Netflix's "industry-leading" subscription retention rate is facing growing headwinds. Netflix's Emmy wins this year were notably low, the fewest since 2016; Rotten Tomatoes user scores for its latest series were also down 7% from previous seasons. "Engagement matters because it improves retention, strengthens pricing power, and is closely watched by advertisers. We now see downward pressure on retention due to weakening appeal of original content, while consumer fatigue with streaming is also intensifying," he said in the report. This is the second downgrade of Netflix in less than a week. Wells Fargo & Company had earlier downgraded Netflix from Hold to Underweight and cut its price target from $80 to $57, citing concerns that declining user engagement and its content strategy will pressure margins. As of Tuesday's U.S. stock market close, Netflix fell 1.64% to $72.16. The stock is down 23% year to date.