Shares of Netflix (NFLX)�are down $2.07, or almost 2%, at $109.60, after Raymond James’s Aaron Kessler cut his rating on the stock to Underperform from Market perform, writing that the company will remain the “clear leader in digital streaming,” but that it will be harder for the company to make incremental subscriber additions, and that competition will drive higher content costs.
Kessler thinks a fair value range for the stock is $70 to $104, based on his 2013 EPS estimate of $3.25.
“While Netflix experienced strong growth going from 9 million paid subs at the end of 2008 to 21 million subs at the end of 1Q11, growth has leveled off since, in part due to the 3Q11 pricing change, though Netflix is potentially being impacted by the law of large numbers and rising competition,” writes Kessler.
Our analysis of Google search data indicates while Google searches for “Netflix” were up strongly since 2008, 1Q12 data indicates searches are approximately flay y/y. Additionally, while Netflix has 22.8 million domestic subs today, it has churned off 31 million subs over the past three years, indicating Netflix may have already reached over half of its U.S. addressable market.
Kessler details the competitive landscape:
We believe the main competitors today for Netflix streaming in the U.S. include Amazon, Hulu, HBO, and Showtime, though we believe other players including Google, Apple, and the recently announced Redbox/Verizon joint venture and Comcast “Xfinity Streampix,” could become more competitive as well.
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