Wedbush Pounds The Table On Netflix Overvaluation, Maintains Underperform

Wedbush Securities reiterated its Underperform rating on Netflix, Inc. NFLX saying it still believes the stock is overvalued.

Netflix's quarterly subscriber additions for both domestic as well as international came in below expectations on higher churn due to the un-grandfathering of recent price increases.

"We think that by delaying the price increases originally scheduled for May, Netflix created a lingering problem with investors—slowing domestic growth that will likely persist for the next two quarters as it "un-grandfathers" as many as 30 million more domestic subscribers over the next five months," analyst Michael Pachter wrote in a note.

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Netflix added 0.16 million net domestic streaming subscribers versus Wedbush estimate and guidance of 0.50 million, and 0.90 million last year.

Netflix added 1.52 million net international streaming subscribers versus Wedbush estimate of 2.25 million, guidance of 2.00 million, and 2.37 million last year.

"We believe that Netflix's international content may be too thin to attract enough gross subscriber additions to hit its targets, and insufficiently robust to retain as many customers as the company has modeled," the analyst continued.

As such, Pachtercut his FY16 estimate for revenue to $8.828 billion from $8.870 billion, while increasing estimate for GAAP EPS to $0.32 from $0.21 to reflect first quarter results and second quarter guidance.

Additionally, Pachternoted that Netflix's current share price fails to address the potential for meaningful competition from Amazon.com, Inc. AMZN, which recently launched a video-only subscription option of its own.

"We acknowledge that Netflix has the much more powerful brand for SVOD, but we are confident that with its new standalone service, Amazon declared war on Netflix," Pachter elaborated.

Pachter, however, raised his price target by $5 to $50, reflecting a sum-of-the-parts analysis that values domestic streaming at $39/share, international streaming at $10/share, and domestic DVD at $1/share.

"We believe Netflix's current valuation is unwarranted given the potential for sustained decelerating domestic growth coupled with consistently elusive international profitability, in addition to increased competition," Pachter added.