Wedbush Maintains Underperform On Netflix, Sees 58% Downside From Here

In a report published Friday, Wedbush Morgan analyst Michael Pachter maintained an Underperform rating on

, while reducing the price target from $270 to $40 to reflect the seven-for-one stock split in the company's shares. Netflix is expected to report 2Q results modestly ahead of its guidance, driven by a strong recent release slate and cost control. The company's revenues and EPS are expected to be $1.66 billion and $0.05, or $0.38 pre-split, with domestic streaming net adds and international net adds expected to be 0.75 million and 2.10 million, respectively. Analyst Micahel Pachter believes that Netflix's 2Q EPS guidance of $0.26 pre-split was "conservative," while pointing out that the company had surpassed the figure every quarter since 1Q13. Forex headwinds exerted pressure on the company's 1Q earnings and the trend is expected to have continued in 2Q. In the report Wedbush Morgan noted, "A solid slate of new original content in 2015 including season 3of House of Cards (February 27), The Unbreakable Kimmy Schmidt (March 6), and Marvel's Daredevil (April 10) likely kept attrition low in Q2, and attrition likely remained low from the release of season 3 of Orange is the New Black (June 12)." The company's recent expansion in Europe, Australia and New Zealand are expected to boost international adds. Pachter expects Netflix's shares to respond positively to continued domestic subscriber growth.