Analyst: Netflix Subscriber Growth May Disappoint

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Netflix may be seeing subscriber momentum at the lower end of its projections, Janney Montgomery Scott analyst Tony Wible said Thursday, citing recent data points. He reduced his expectations for the company and its stock ahead of its latest earnings report on Monday.

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"A number of items emerged over the past couple of months that warrant more consideration heading into Monday's earnings," Wible wrote in a report. "Internet tracking data has deteriorated, Netflix has modified its acquisition philosophies, and [Redbox parent] CoinStar has posted better DVD results. Any one of these data points could be dismissed as benign anomalies, but the collective of these items should warrant more caution going into earnings."

The video streaming company is led by CEO Reed Hastings.

In terms of Internet tracking, Wible pointed to recent comScore and search activity data that, he argued, "show a swift deceleration in Netflix interest/demand in the first quarter that could dispel the notion of a recovery."

After all, he said those sources are pointing towards around 24.7 million unique U.S. subs. "We believe Netflix's guidance of 22.8 million to 23.6 million U.S. streaming and 9.4 million to 10.0 million DVD subs would imply total unique U.S. subs of 24.7 million to 26.1 million, if our estimate of 7.5 million hybrid subs were accurate," Wible calculated. "The tracking data suggests Netflix's U.S. sub growth is pacing towards the low end of this guidance."

Wible reiterated his "sell" rating on Netflix's stock "as we believe Netflix faces a potential slowdown in sub growth that will make it more difficult to scale the low-margin streaming business that is now cannibalizing the high-margin DVD business." Lowering his financial estimates, Wible also cut his fair value target on Netflix's stock to $55.