Netflix subscribers up, share price down – why?

Written by on January 21, 2016 in News with 0 Comments
Reed Hastings, co-founder and CEO of Netflix.  REUTERS/Steve Marcus

Reed Hastings, co-founder and CEO of Netflix. REUTERS/Steve Marcus

(Reuters) – Netflix Inc’s shares fell as much as 10 percent on Wednesday after a widespread selloff on Wall Street overshadowed the video streaming company’s impressive subscriber additions in the fourth quarter.

U.S. stocks were on a tailspin, with the Dow Jones industrial average losing more than 500 points, after oil prices continued to plummet unabated.

“People are just taking this opportunity to sell a stock that has been a winner for a long time,” Barclays analyst Paul Vogel told Reuters, adding that the subscriber numbers were “pretty good but not exceptional.”

Netflix’s shares more than doubled last year and trade at a lofty valuation, making them susceptible to sharp declines when broader markets tumble.

The stock trades at about 382.6 times forward earnings, compared with Facebook Inc’s 33.1, according to Thomson Reuters StarMine.

Investors were also concerned with the video streaming pioneer’s slowing growth at home and aggressive cash burn due to the international expansion.

The company added 1.56 million U.S. subscribers in the fourth quarter, below the 1.65 million it had forecast, and less than 1.9 million a year earlier.

“Investors appear to believe that international subscribers will be as valuable as domestic subscribers (we disagree), and that aggregate international growth will generate consistent profitability, without regard to differing tax, regulatory and cultural environments (we disagree),” Wedbush Securities analysts wrote in a note.

Wedbush analysts have an “underperform” rating, but raised their price target on the stock to $45 from $40.

The company said on Tuesday it had 74.8 million subscribers at the end of December and forecast 6.1 million more through March, fueled by its expansion this month into virtually every country except China.

Analysts surveyed by FactSet StreetAccount had forecast an addition of 4.94 million subscribers in the three months to March.

At least nine brokerages raised their price targets on Netflix. Cowen & Co analysts were the most bullish on the stock with a price target of $155, raising it from $150. Jefferies had the steepest rise – to $120 from $105.

(Reporting by Supantha Mukherjee and Lehar Maan in Bengaluru; Editing by Saumyadeb Chakrabarty)

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