Could Netflix's Guidance Hurt Shares?

Wedbush’s Michael Pachter believes Netflix, Inc. NFLX is overvalued, and the company’s content library does not justify its accelerating cash burn.

Pachter maintains an Underperform rating on the company, with a price target of $60.

Stock Performance

“Netflix continues to burn cash to fund its acquisition of original and exclusive content, while international profitability remains elusive and competition for both content and subscribers is becoming more fierce,” the analyst explained.

Pachter believes Netflix’s current share price suggests limited competition from Amazon.com, Inc. AMZN, which has recently expanded internationally.

In order to compete with Amazon, Netflix would need to increase spending or its international subscriber growth would slow down. In fact, the analyst expects the company’s international subscribe growth to slow to about 2 million in 2017.

Q4 Results And Q1 Guidance

Pointing out that Netflix is scheduled to report its Q4:16 results on January 18, Pachter stated that the results were likely to either meet or beat the subscriber guidance.

Revenue for the quarter was expected at $2.48 billion, with EPS of $0.13, more or less in line with the consensus forecasts, with the EPS in line with the guidance.

However, the analyst also believes the stock could be adversely impacted by the Q1 guidance, given that the company is expected to guide to Q1 net subscriber additions below the year ago levels.