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Wedbush Maintains on Netflix, Noting Comcast's $25-50M Surcharge

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In a report published Monday, Wedbush analyst Michael Pachter maintained an Underperform rating on Netflix (NASDAQ: NFLX) and $175.00 price target following the announcement of the Comcast deal.

Pachter noted that the terms of the Comcast and Netflix deal were not disclosed. Wedbush commented that Comcast could seek $0.01 per GB transmitted, charging Netflix somewhere between $25- $50 million annually for a three to five year term. The analyst added that this agreement "reinforces our belief that ISPs are reluctant to charge users more, but are unconcerned about charging Netflix a nominal amount." Pachter reported that the aggregate, payments to Internet Service Providers (ISPs) will like escalate in the upcoming years.

Wedbush wrote, "We believe Netflix provides a compelling service at an affordable price, and has done a phenomenal job of winning back the loyalty of its customers since its decision to split the business over two years ago. At $7.99 per month with strong content, Netflix has been able to grow its subscriber base far beyond our expectations of only a few years ago, and it appears that subscriber growth can be sustained at current levels for at least another few years.

"The company continues to grow its international presence, but we believe it will have difficulty turning cash-flow positive for a sustained period of time while continuing to expand its international presence, due to its large content commitments, and we expect broadband access commitments to place greater pressure on profitability going forward. Simply put, we do not believe that Netflix's current pricing model will allow the company to generate sustainable profits at a high level, although it will allow for sustainable growth. In order to be sustainably profitable, we believe that Netflix must raise price, and therein lies the dilemma: Netflix can be a high-growth, low-profit company, or it can be a low-growth, high-profit company. We do not believe that there is room for a balance between the two, and believe that investors are overvaluing Netflix's unprofitable growth."

Shares of Netflix closed at $432.23 on Friday. Netflix is currently up 3.63% at $447.91.

Latest Ratings for NFLX

DateFirmActionFromTo
Apr 2021Cowen & Co.MaintainsOutperform
Apr 2021Canaccord GenuityMaintainsBuy
Apr 2021WedbushMaintainsUnderperform

View More Analyst Ratings for NFLX
View the Latest Analyst Ratings

 

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