Netflix Stock Drops 25 Percent to 52-Week Low

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UPDATED: Under the weight of negative comments from analysts, the stock is worth less than one fourth of its $285 value a year ago.

Netflix shares were under assault Wednesday by investors and analysts alike, causing shares to plunge $20.11 to a 52-week closing low of $60.28. Less than a year ago, the stock was at $285 a share.

Even HBO wasn’t being hospitable to Netflix on Wednesday, brushing aside an olive branch extended by Netflix CEO Reed Hastings, who has been trying unsuccessfully to license HBO shows.

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"While we compete for content and viewing time with HBO, it is also possible we will find opportunities to work togeter -- just as we do with other networks," Hastings wrote in a letter to shareholders on Tuesday.

But on Wednesday, HBO spokesman Jeff Cusson said: “We are not in discussions and have no plans to work with Netflix.”

The catalyst for the stock’s 25 percent fall on Wednesday, though, was quarterly earnings that were announced on Tuesday. While Netflix beat expectations by some metrics it disappointed in terms of subscriber additions and guidance. Netflix reported that it added 533,000 subscribers to its domestic streaming business while analysts were hoping for 800,000.

By the end of the second quarter, Netflix had 25.23 million domestic DVD and streaming subscribers and another 3 million internationally, and the midrange of its projection for the current quarter is an additional 1.36 million streaming subs domestically.

Analysts were not impressed and negative commentary was the order of the day. Below is a roundup of analyst activity surrounding Netflix.

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• Credit Suisse

Lowered target price from $115 to $100. Maintained “outperform” rating.

Commentary: "Global profitability may be flattish over the next few years with Netflix largely allocating domestic profits to streaming content and marketing in new international markets.”

• Wedbush Securities

Maintain $45 price target and “underperform” rating.

Commentary: "Should Netflix hope to return to its former high growth, we believe that the company must pay more for content in order to keep defections within a manageable range. This leaves the company with two choices: either grow fast and sacrifice profits, or grow slowly and generate a high level of profitability. We think investors have misjudged Netflix’s ability to continue to grow with inferior content, and believe that until the company provides greater insight into growth trends for content costs, subscriber growth and profitability, investors should avoid Netflix shares."

• Janney Capital Markets

Lowered “fair value” from $67 to $53, maintained “neutral” rating.

Commentary:  "We have seen multiple efforts by the company to generate buzz about the fundamentals (e.g. Facebook postings, streaming stats, overly optimistic guidance, etc.) that ultimately failed to live up to the expectations. This may lead some investors to question any optimistic news flow and lead others to be reluctant to look at the name after being burned on multiple occasions."

• BMO Capital Markets

Maintain “market perform” rating.

Commentary:  "For the September quarter, the company expects international subscribers to range from 3.9 million to 4.4 million versus our estimate and the consensus estimate of 4.6 million subscribers. We believe the lower forecast was driven by fewer expected net adds owing to the upcoming Summer Olympic Games.

• Lazard Capital Markets

Maintain “neutral” rating.

Commentary: “One positive is that the bad news is out.”

• Barclays Equity Research

Reduce target from $95 to $80 and maintain “equal weight” rating.

Commentary: "While per-member viewing hours on Netflix continue to increase, there is little evidence that incremental usage is helping to drive upside to net subscriber additions. Given the absolute level of content licensing costs, we believe a reacceleration of subscriber growth is imperative for the stock to sustainably recover."

• SIG Susquehanna Financial Group

Reduce price target from $95 to $70.

Commentary: "Internationally, challenges appear to persist in Latin America. Management highlighted low device penetration, insufficient Internet infrastructure, and consumer payment challenges as the main obstacles. We think these are necessary but insufficient conditions. Netflix may be too early and the consumer isn’t ready: pay TV penetration in Brazil, Mexico, and Argentina is currently around the levels the US reached in 1980 (one year after ESPN was launched and one year before MTV started), 1990, and 1994, respectively."

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