Analyst: Netflix Inc. Is Victim Of High Expectations

Netflix Inc.

shares crashed Thursday on disappointing third-quarter subscriber growth and news that Time Warner Inc.'s

HBO unit will compete in the streaming movie sector. "It's an eye-popping reaction to a modest miss" in subscriber growth, FBR's Barton Crockett said in a note Thursday maintaining a Market Perform rating and $425 target. Crockett called HBO's plan to offer streaming video next year "not a major change in the competitive landscape" and said Thursday's share-price decline "speaks more to high expectations" than a change in fundamentals for Netflix. The company met third-quarter revenue exceptions and beat Street views on profit. But international subscriber growth of 2.04 million was 13 below its earlier forecast. Netflix last year switched to a new method for making its subscriber growth estimates and told investors at the time its predictions "would be too low as often as too high," according to Crockett. "This is our first taste of too high," Crockett said. Even with Thursday's decline Crockett finds Netflix's share price too rich. But eventually, "we could be more favorably inclined if a stock price decline were to create a more comfortable valuation." Canaccord's Greg Miller sees no problem with price and maintained a Buy rating Thursday. The miss on subscriber growth stemmed mostly from a $1 boost to Netflix's monthly fees in the U.S., Miller said. The company made "dramatic improvements" to its network recently and expanded the number of titles it offers. "It's a delicate balancing act" to set charges accordingly, Miller said, adding that "management will refine their approach." Miller, in turn, refined his price target down to $450 from $550. Topeka's David W. Miller, who isn't apparently related to Greg Miller, similarly maintained a Buy rating on Netflix and trimmed his target to $511, from $527. Although Netflix offered a disappointing fourth-quarter outlook on higher-than-expected marketing costs, Miller gave that a pass. "Marketing expense is a necessity,especially given recent launches in Germany, France, Austria, and Luxembourg last month," Miller said. Near Thursday's close, Netflix changed hands recently at $361.26 a share, down more than 19 percent.