Michael Pachter: Netflix Faces Growth Challenges

According to analyst Michael Pachter at Wedbush Morgan, “Netflix (NASDAQ:NFLX) will be challenged to grow at its current pace for more than another year, and we expect its premium valuation to contract.”

Here’s Pachter’s bullet points for next week’s earnings release:

  • Netflix (NASDAQ:NFLX) will report its Q4 2010 (Dec) results after market close on Wednesday, January 26 with a call at 3:00pm PT (760-666-3613 or at http://ir.netflix.com).
  • We expect Q4 results in-line with our estimates for revenue of $601 million and EPS of $0.75, though ending subs may be higher than our estimate of 19.7 million, compared with consensus for revenue of $597 million and EPS of $0.71.
  • Increasing subscriber growth from streaming expected to drive revenue.
  • Netflix should continue to benefit from brick-and-mortar store closures.
  • Although Netflix should meet its Q4 EPS guidance, continued heavy spending on its streaming catalog will be a drag on margins in the long-term.
  • We believe that Netflix will be challenged to grow at its current pace for more than another year, and we expect its premium valuation to contract.
  • Maintaining our UNDERPERFORM rating and our 12-month price target of $78, which reflects a multiple of 21x our FY:11 EPS estimate of $3.73.

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