Netflix: Stock Is Too High, Says Needham

Published on May 15, 2008
by Eric Savitz

Netflix (NFLX) shares are coming under pressure today following a skeptical note on the company from Needham analyst Charlie Wolf.

Wolf today picked up coverage of the company with an Under Perform rating; he writes that “the company’s current valuation incorporates unrealistic subscriber acquisition cost and churn rate assumptions.” He calculates fair value for the shares to be $22, well below the current level.

Wolf, a long-time Apple bull, seems to be making the anti-iTunes call here. “Netflix’s immediate challenge lies in building a profitable video digital distribution business,” he writes. “In contrast with the online DVD rental market, which the company has owned, Netflix will have to compete with several heavyweights in this market. Indeed, Apple has already carved out a first-mover advantage.”

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