Following Netflix’s (NFLX) CEO Reed Hastings’s mea culpa (sort of) yesterday regarding the company’s infamous price change, the stock received another downgrade today from Caris & Co.’s David Miller, a scant two days after he’d cut the stock last weekfollowing the diminished subscriber outlook for this quarter.
Miller’s rating goes to “Below Average” from “Average.” Miller thinks the company won’t make the $1 billion revenue mark this quarter, its first ever billion-dollar quarter, that investors have been looking forward to, and he questions the company’s announcement yesterday that its DVD-by-mail business will add video game rentals.
Miller again made a monumental cut in his target price, from $185 to $103 (the original target was $322.) Netflix shares today are off $12.74, or almost 9%, at $131.01.
Miller’s question last week was why the company didn’t reiterate its expectation for a billion in revenue this quarter, as a way to mollify investors. Now, he thinks, the company is becoming more cautious about that goal.
The Street has been modeling $948.5 million in revenue in the December-ending quarter.
In the company’s Q2 shareholder letter, dated July 25th, Netflix had said: “In Q4, we expect domestic net additions to return to a pattern of year-over-year growth while revenue will reflect a full quarter�s impact of the pricing changes, which could result in Q4 being our first billion dollar global revenue quarter, driven by strong U.S. performance.”
Writes Miller, “It is become apparent since issuing that piece, only 2 sessions ago, that in a series of calls with select investors just yesterday, NFLX is indeed backing off that $1.0B revenue bogie, at least rhetorically.”
Miller cut his 2011 end-of-year subscriber number to 28.2 million, the second cut after reducing his estimate on Friday to 29 million from 29.7 million.
He also cut his Q4 number to $939 million from $992 million. He cut his EPS number for Q4 to $1.31 from $1.10.
As for video games, Miller thinks the decision is shocking:
We simply do not like this decision. The beauty of filmed entertainment, as we see it, is that it is a long-lived asset exploitable in multiple windows. Audiences of the series �Seinfeld,� for example, can still find virtually the same entertainment value in watching that show today versus its prime almost 20 years ago. The same cannot be said for video games, which find obsolescence very quickly. As such, we fear NFLX will suffer inventory turnover issues as it climbs the learning curve of a business completely different in nature and style than film rental.
I would note, too, that Stifel Nicolaus’s George Askew had a note out late yesterday opining that the announced separation of the streaming and DVD businesses may mean that Netflix is open to selling the DVD part at some point, as related today by Bloomberg’s Cliff Edwards.
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