Netflix Shares Decline After First-Quarter Results

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Citing valuation concerns, Janney Montgomery Scott analyst Tony Wible downgrades the stock to “sell” in a report entitled “Headwinds Trump Momentum.”

NEW YORK – Shares of Netflix, which have been flying high, opened lower on Tuesday after the company reported better-than-expected first-quarter results late Monday, but its second-quarter outlook disappointed Wall Street observers.

Analyst reviews ranged from positive – including some price target increases - to neutral to concerned, with one recurring theme though being that Netflix’s market value may have gotten ahead of itself.

Netflix shares closed down 9 percent at $228.91. The stock has traded between $90 and $254.98 over the past year.

Ahead of its earnings report, Netflix, led by CEO Reed Hastings, was “priced for close to perfection,” said Lazard Capital Markets analyst Barton Crockett who has a “neutral” rating on the stock. “The report was a step short of that, which may pressure these volatile shares…with a high valuation overshadowing still robust fundamentals,” he said.

In one of the clearest Wall Street reactions, Janney Montgomery Scott analyst Tony Wible downgraded Netflix shares to “sell” in a report entitled “Headwinds Trump Momentum.”

“It will be increasingly more difficult to support its high valuation,” he wrote, citing such concerns as an expected slowing of U.S. subscriber growth ahead and “an increase in competition that will likely trigger an increase in content costs and subscriber acquisition costs.”

He also expressed disappointment with management’s limited disclosures, including a lack of a full-year forecast.

Meanwhile, BMO Capital Markets analyst Edward Williams maintained his “market perform” rating, similar to a “neutral,” saying: “We are raising our 2011 estimates to account for the beat in the quarter, partially offset by investments in content and international expansion.”

Twitter: @georgszalai