Wedbush Securities’s Michael Pachter today cuts his rating on Netflix (NFLX) to Underperform from Neutral, writing that the company’s business model is “broken” as a result of having raised prices over the summer, leading to much higher spending on marketing efforts.
Pachter has a $45 price target on the stock.
Streaming content license costs will also rise sharply, perhaps to $1.7 billion in 2012 from $800 million in 2011.
We are particularly concerned by the company�s �growth at all costs� business model. Netflix management is willing to incur losses for all of 2012 in order to chase international expansion; we think that international subscribers will generate losses for the foreseeable future at a time when the company has alienated its most profitable domestic customers with its sharp price increases, further challenging its profitability.
Although Netflix warned last week it will have losses for the full year 2012, current Street consensus still reflects a GAAP profit of 59 cents a share; Pachter thinks that’s way too optimistic; he’s modeling a 35-cent loss but in actuality, “there may be no bottom to the company’s 2012 losses” as a result of the cost to expand overseas.
Netflix shares today are down $1.50, or 2%, at $66.07.
Previously: Netflix: �Painful Lessons� Says CFO; Credit Suisse Encouraged, November 29th, 2011.
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