Wedbush Securities Reiterates Underperform Rating, $45 PT on Netflix

In a report published Wednesday, Wedbush Securities reiterated its Underperform rating and $45.00 price target on Netflix

. Wedbush noted, “In our view, the market's positive reaction to Tuesday's announcement (Netflix shares closed up 14% on Tuesday) was unwarranted, as the exclusive nature of the deal was highly likely to involve a steep price tag. The exclusive nature of the deal for premium Disney content implies that Netflix outbid all other interested parties, and necessarily means that Netflix paid more than Starz has paid for such content in the past. In its most recent financial statements, Starz disclosed annualized programming expenses of almost $660 million based on the September quarter figure, implying that roughly $330 million was paid to Disney (the deal involves exclusive rights to Disney and Sony film content in the pay TV window), and we estimate that at least 2/3 of this figure was for more recent movies. In a note from September 2011, we estimated that Starz, had sought as much as $350 million annually from Netflix to renew their earlier deal. However, Netflix apparently balked at the price, and the deal expired earlier this year, resulting in Netflix's losing roughly 25% of its “newish” content. We think Netflix paid at least $225 – 250 million annually for the Disney content, and believe that the starting point could be as high as $300 million, with likely escalator clauses built into the agreement. The eventual annual price tag could easily exceed this range if Netflix is able to attract a meaningful number of new domestic streaming subs over the next few years.” Netflix closed on Tuesday at $86.65.