Netflix Analyst Upgrades Stock Rating From 'Negative' to 'Neutral'

Netflix - Generic Image - 2010
Jin Lee/Bloomberg/Getty Images

"That’s it for visible downside, at least for now," says Susquehanna's Vasily Karasyov, but predicts weak subscriber trends "for the next several quarters."

NEW YORK - Susquehanna Financial Group analyst Vasily Karasyov on Monday upgraded his rating on Netflix's stock from "negative" to "neutral," arguing that "that’s it for visible downside, at least for now."

He highlighted that Netflix shares finished Thanksgiving week at $63.86, close to his $60 price target, implying maximum downside of only 6 percent.

"Risks to fundamentals and valuation remain to the downside, but very low visibility into the drivers and a significantly lower stock price largely offset the downside potential," Karasyov argued.

Following Netflix's third-quarter earnings report in October, the analyst had downgraded his stock rating due to the assumption that net subscriber add declines would be a drag on the stock  and losses associated with international market launches would hurt profitability.

"We believe both of these factors have materialized and are largely priced in at this point," Karasyov wrote on Monday following Netflix's recent decision to raise money and a forecast of 2012 losses.

He predicted subscriber trends "for the next several quarters" to show year-over-year percentage changes in net adds that are negative though, even though he expects quarter-over-quarter growth to return in the first quarter of 2012. "As long as net subscriber adds are negative [on a year-over-year], we expect the valuation to remain under pressure" since Netflix's stock historically does better when growth in net adds accelerated, he said. His price target of $60 is based on a model based on how the stock did when year-over-year net adds were negative in 2007.
But Karasyov is less concerned about competition from new entrants into the online streaming space in the U.S., which the analysts often cite as a concern. "We believe that repairing the brand and turning around subscriber acquisition trends, not threats of new competition, are Netflix’s main challenges in the intermediate term," Karasyov said.


Twitter: @georgszalai