Netflix shares fall more than 13%

Analysts divided about earnings growth potential

NEW YORK -- Netflix shares fell more than 13% Thursday as Wall Street expressed some concern over weaker-than-hoped second-quarter revenue and high subscriber acquisition cost at the DVD-by-mail pioneer. Analysts also worry about increasing content costs and the company's high valuation.

Netflix shares had more than doubled this year, and the company reported a 34% profit improvement for the latest quarter late Wednesday.

But onThursday, the stock dropped 13.4% to $103.56 giving it a market value of $5.4 billion. Its 52-week trading range is unusually wide. Over the past year, the stock has traded between $39.27 and $127.96.

Analysts are divided in their views on Netflix, with the bears worrying about rising content costs, among other things.

Wedbush Securities analyst Michael Pachter maintained his "underperform" rating on Netflix shares, but lifted his price target to $77. "Earnings growth to slow as content costs are increasing," his report's headline explained.

Similarly, Tony Wible rates Netflix shares at "sell" with a $61 fair value estimate "as we believe Netflix remains overvalued based on Street expectations that do not adequately discount such things as potentially increasing competition and content cost inflation."

On the other end of the spectrum, Jefferies & Co. analyst Youssef Squali raised his earnings estimates and boosted his price target by $28 to $128.

"Netflix's growth momentum and competitive positioning is stronger than ever and we reiterate our "buy" rating," he said.
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