The investment bank, which axed Netflix’s rating to “underweight” from “equalweight,” attributed the downgrade to an expected surge in competition this year, particularly from Amazon Prime (AMZN), Hulu and HBO Go. Hulu is part owned by FOX Business parent 21st Century Fox (FOXA).
“We expect competition in U.S. digital video streaming to grow tighter in 2014,” Morgan Stanley analysts said in a note to clients.
Those services could each “corner specific segments of the market,” the analysts said, thus challenging Netflix’s subscriber growth and potentially leading to higher U.S. marketing and content costs.
Morgan also lowered its 12-month price target on Netflix to $310 from $333. Shares of Netflix were off about 4.6% to $343 in recent trade, while those of Amazon were up 1.1% to $398.
The bearish note comes after a stellar year for Netflix, where it reached record subscriber growth thanks in part to the popularity of its original shows Orange is the New Black and House of Cards. Its shares soared 300% last year to record highs, and Netflix upped CEO Reed Hastings pay by 50%.
Netflix is exploring new pricing strategies, including offering a cheaper, $6.99 plan for one-screen rentals and a family plan with up to four screens for $11.99.
Amazon Prime, whose service also include free two-day retail shipping, costs $79 a year, or about $6.60 a month. Hulu Plus costs $7.99 a month.