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Keeping ‘Sell’ on Netflix (NFLX, AMZN, AAPL)

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By Jon C. Ogg Updated Published
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Yesterday’s Facebook slap on Netflix, Inc. (NASDAQ: NFLX) is one which has already gone with some supporting the drop and others refuting it.  It seemed a bit harsh if you look at the immediate impact, but longer-term of course can be a grossly different issue.  If Facebook did it, that means that anyone who can secure a deal with the movie studios can do it.  This morning came some observations from Gabelli & Co. research, but what will stand out the most is the Reiterated SELL rating.

The firm noted that Netflix traded down roughly $5 yesterday after Warner Bros. announced that it will sell movie rentals through Facebook.  The firm calls this merely one distribution outlet for the a la cart service, but the firm also expects competition to expand from Amazon.com Inc. (NASDAQ: AMZN) and Apple Inc. (NASDAQ: AAPL) via iTunes.

Gabelli’s notes do not show a drop-off near-term but notes that Netflix should see pressure first on margins and eventually on subscriber growth rates.  It currently has about 20 million subscribers and the firm sees that 20 million becoming 28 million through 2011 and that the rate will slow thereafter.

Valuation is a large part of the call as well.  Netflix trades at roughly 27-times 2011 EBITDA and roughly 52-times projected earnings.

JON C. OGG

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About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. www.247wallst.com.

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