Wedbush analyst Michael Pachter has been one of the most prominent long-term bears on Netflix Inc.’s NFLX stock, despite the streaming video-on-demand company’s stellar run over the last decade.
While Pachter remains bearish on Netflix, he admitted in an interview with Bloomberg on Sunday that he made some key miscalculations when it comes to the SVOD company.
Subscription Growth: The Wedbush analyst said he never anticipated Netflix would hit 200 million subscribers, as it revealed in its latest quarterly earnings report.
“I thought they were close to saturated in the U.S. Even this quarter, 850,000 more is impressive. They just keep adding people,” Pachter told Bloomberg’s Lucas Shaw.
Ability To Upend Cable: The Wedbush analyst thought cable companies would put up a bigger fight than they eventually did.
Viacom, A&E Network, CBS, and NBCUniversal —instead of keeping Netflix as far away from their programming as possible — gave in to the checks in exchange for licensing their content, giving Netflix the initial run, as per Pachter.
Once Netflix’s streaming service began chipping away at the market share of cable companies, the latter responded by launching their own streaming services, further undercutting cable.
Original Content: Pachter noted that Netflix has managed to churn out decent original content against his expectations. “At $14, you’re not getting ripped off,” according to the analyst.
“They turned positive free cash flow and didn’t lose anybody. They grew revenue and had the astute move of raising prices during all this,” Pachter told Bloomberg. “Suddenly, they are much healthier than I thought.”
Why Is Pachter Still Bearish? The analyst said he still doesn’t see how Netflix can possibly reach the goal of 600 million subscribers. “There’s just not that many people that can subscribe to Netflix,” as per Pachter.
Under the Wedbush analyst’s valuation model, Netflix would need to raise its service’s price by $5 and double its user base to meet his free cash flow target.
Price Action: Netflix shares closed 2.5% lower at $565.17 on Friday.
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