Netflix (NFLX) Painting the Picture of a Slowdown - Janney

April 19, 2012 9:30 AM EDT
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Netflix (NASDAQ: NFLX) is seeing a little pressure early Thursday after analysts at Janney Capital lowered numbers citing a potential slowdown and possible split.

Analyst Tony Wible cut its fair value target on Netflix to $55, which would suggest nearly 50 percent downside from yesterday's close of $107.

Wible said Netflix "faces a potential slowdown in sub growth that will make it more difficult to scale the low margin streaming business that is now cannibalizing the high margin DVD business." Also, international losses are likely to stack up through 2014 and risk are great. The analyst also contends that the DVD business is overvalued and the Street will be forced to value the stock on a sum of the parts basis.

He is very cautious into Q1 results, citing a number of items including: Internet tracking data has deteriorated, NFLX has modified its acquisition philosophies, and CSTR has posted better DVD results . "Any one of these data points could be dismissed as benign anomalies but the collective of these items should warrant more caution going into earnings," he said.

Wible also notes that ComScore and search activity show a swift deceleration in NFLX interest/demand in 1Q12 that could dispel the notion of a recovery.

He also notes the company's recent actions support the notion of a slowdown. He said the company recently changed its DVD acquisition technique, spoke of partnering with MSOs, and has taken actions that could suggest there is another attempt to split the services. "The acquisition of, the recent change in UI, and internal reference to "Split 2.0" could be seen as a way for NFLX to establish a cleaner separation between the two services and the Netflix brand, which may be warranted if NFLX were to ever pursue strategic alternatives and/or partnerships."

Wible is cutting US streaming sub from 24.4 million to 23.2 million and lowering DVD sub number from 10.3 million to 9.7 million. He also reduces 1Q12, 2012, and 2013 EPS to ($0.23), ($0.35), and $2.10, respectively.

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix closed at $106.96 yesterday.

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