Shares of Netflix (NFLX) are down $5.70, or 5%, at $105.92 as the debate continues: redemption or continued blundering.
The stock jumped yesterday morning as Netflix said it rescinded its decision to split its streaming video and DVD-by-mail operations into separate Web sites. But the stock received a downgrade yesterday afternoon from Wedbush Securities’s Michael Pachter, who said now there’s less chance the company can sell its streaming operations.
The stock received an upgrade this morning, from Hudson Square Research’s Daniel Ernst, who raised his rating to Hold from Sell.
But a note from Andy Hargreaves of Pacific Crest expresses a mix of optimism and caution. Netflix still has “significant advantages” versus the competition, and the “risk/reward” ratio is positive, he thinks. A sum-of-the-parts analysis of the company’s market cap at present implies a long-term subscriber base of 62 million streaming subscribers by 2016, from 23 million today, at an operating margin of 15%, which is “very achievable,” he thinks. That implies a $4.5 billion valuation on the streaming business.
Nevertheless, the company is suffering “brand damage” at the moment, and Hargreaves cut his subscriber estimates and EPS estimates. For next year, he sees 12.2 million DVD subs in the U.S. market, down from a prior 12.4 million estimate, and 28.6 million streaming subscribers, down from a prior 29.3 million. He also sees 5.8 million international subscribers, which is unchanged from before. Hargreaves cut his EPS estimate to $6.26 from $6.57, below the consensus $6.44, and for 2013 he introduces an estimate of $8.17, below the consensus $8.22.
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