Netflix (NFLX) shares fall in Tuesday's pre-market trading session following a Citi downgrade to "Hold." Citi analysts have pointed to three areas of concern within Netflix: falling revenues, higher costs for cash spending, and lack of pursuance in M&A activity.

Yahoo Finance Market Reporter Jared Blikre deep dives into this note and weighs in on how Netflix is competing with its streaming rivals.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Eyek Ntekim.

Video Transcript

BRAD SMITH: Well, we're also tracking Netflix shares here this morning, they're falling in premarket. After Citi raises three warning signs for the stock, the investment bank believes one of the biggest potential risks for Netflix investors comes from the streaming giant's lack of activity over pursuing large scale mergers and acquisitions. We've been hearing more talks of consolidation fueling the next wave of streaming services. For more on this, we've got "Yahoo Finance's" Jared Blikre here to put this into context for us. Hey, Jared.

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JARED BLIKRE: Hey, there. "Expectations are simply too high." That is a quote from the Citi analyst. And as you said, Brad, they're seeing risks in three key areas-- and I have this on the YFi Interactive-- lower revenues, higher cash content costs, and potential M&A.

And what this comes from-- where this comes from are expectations that they see the Street has just gotten way too high. So number one, they're seeing the risk that accelerating revenue growth is just going to continue ad infinitum. It might not. EBIT margin expansion to new highs. Muted increases in content spending. So that gets back to their cash flow-- their cash burn. Robust free cash flow, and also those large cash purchases. And that relates to M&A.

And as you said, Brad, they have not pursued a strategy of M&A in the past. They have pivoted in the past. I can still remember when they pivoted from DVDs-- and that was a major shift. And there's a lot of speculation that they might do something similar into the gaming industry.

And here's a quote from the analyst over at Citi. "If Street estimates are accurate and if the firm does not buy back significant stock over the next two years, it will have more than an $8 billion in net cash on the balance sheet by 2025, giving the firm ample opportunity to pursue M&A." And that's costly.

Shareholders have been rewarded by share buybacks to a high degree in the past. And if we go back to the YFi Interactive, I just want to quickly chart the streaming space here. These squares are over the last year. So you can see at Apple, Alphabet, Amazon-- it might not be their main business, but those are some of the behemoths that they have to contend with. And then here's Netflix, up 53%.

But if I sort by performance, you can see a lot of what you would call the pure play media companies simply have not done that well over the last year. That includes Disney, down 2.5%, and Warner Brothers up barely 7/10 of a percent, guys.