Given the fact that Netflix (NFLX) shares have gained 180% this year and is the hottest stock in the S&P 500 (^GSPC), it would not seem out of line to suggest that they were also a bit expensive. Okay, really expensive, with a forward price-to-earnings ration of 150!
But even if this red-hot stock was suddenly cut in half, there's one bear on the street who would still see downside in a company he says has no control over its content costs.
"They own nothing and they've acquired nothing," says analyst Michael Pachter of Wedbush Securities who raised his price target on Netflix to $80 from $65 today but kept his "sell" rating.
Contrary to common belief, Pachter says Netflix's highly acclaimed original content and top-rated shows are merely licensed on an exclusive window. "They have the rights to show the stuff for two years and that's it. They don't own Arrested Development. They don't own House of Cards. They don't own Orange is the New Black."
And here's the catch, Pachter says, and the reason why Netflix's future looks so rocky to him: "Unlike HBO, which owns The Sopranos, when Netflix decides they want to show these shows again in three or four years, Netflix has to pay again, HBO doesn't."
To be fair, even Pachter has to concede that the streaming media outfit is continuing to add subscribers and deliver profits, it's just that he doesn't think their profit growth is dramatic enough to justify its rich multiple and $250 share price.
As he sees it, to truly thrive, Netflix would need to raise its monthly subscription fee to $12 or $15 a month from $8 currently, but warns that such a move - while hugely beneficial to the bottom line - would cost the company as much as one-third of its 29 million customers.
"80% of the subscribers we surveyed said (Netflix) was priced correctly or too high already," Pachter says, adding that about the same percentage said "they wouldn't stick around for any price increase, not even a dollar."
For the record, Factset data shows Pachter is one of nine analysts who currently rate Netflix a sell, while the remaining 75% analysts rate it either hold or buy and have a median price target of $213.
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