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Analyst: Netflix Q1 Sub Gains Could Reach 2 Million

19 Apr, 2012 By: Erik Gruenwedel

Wedbush Securities’ Michael Pachter says subscriber additions overshadow ‘bleak outlook’ due to loss of Starz and international expansion costs

Heavy advertising in the second half of the first quarter (ended March 31) likely will help Netflix top its net subscriber addition estimates of 1.93 million, an analyst said.

Los Gatos, Calif.-based Netflix reports fiscal results after the market close April 23.

Michael Pachter, analyst with Wedbush Securities in Los Angeles, said Netflix guided from 22.8 to 23.6 million domestic streaming subscribers by the end of the quarter — indicating net sub adds of at least 1.13 million.

“We believe investors will react positively to the net sub adds given recent attrition and expectations for a loss in each quarter of fiscal year 2012,” Pachter wrote in a note.

The analyst said the loss of Starz Entertainment movies at the end of February leaves Netflix with a “lower-quality” feature film catalog. He said ongoing costs associated with rollout of streaming service in the United Kingdom and Ireland in January will continue to negatively impact earnings.

“We expect management to chase subscriber growth at all costs, driving marketing spending ever higher, making them unlikely to provide a specific earnings range for the full year,” Pachter wrote.

Netflix is guiding for 1 million new subs in Q2, a tally Pachter doesn’t expect the rental service to reach.

“With higher pricing for hybrid plans and the loss of the Starz content, the Netflix service is less appealing than in the past. As such, we do not expect 1 million new subs unless Netflix advertises heavily, hurting earnings,” he wrote.


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