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Analyst: Netflix Streaming Sub Growth to Slow in 2013

2 Jan, 2013 By: Erik Gruenwedel

Meanwhile, Netflix ended 2012 with its stock price up nearly 30% compared with the end of 2011, but investor confidence is apparently ignoring the reality domestic streaming subscriber growth will slow significantly in 2013, according to Wedbush Securities analyst Michael Pachter.

In a Jan. 2 note, Pachter said Netflix has largely converted the majority of potential U.S. streaming subs on mobile devices, consoles and smart TVs into paying subs, and the company faces competition from the Redbox Instant service as early as the second quarter.

“Consensus estimates for domestic earnings power appear overly skewed in favor of domestic streaming, which we think generates  $1.20 income per share, and we believe that Netflix’s DVD business ($3/share) will decline as international expansion (a loss of  $4.20/share) continues, making profitability in 2013 unlikely,” Pachter wrote.

Indeed, Netflix continues to generate most of its streaming traffic domestically, with its website ranked 19th in Internet traffic during the past three months, according to Alexa.com. During the holidays, Netflix traffic increased more than 30%.

Meanwhile, Netflix’s international Internet traffic only ranked 39th and 114th in Canada, Mexico and Brazil, respectively — regions the subscription video-on-demand pioneer has staked capital-intensive expansion. At the same time, Netflix traffic in the fourth-quarter launch in Scandinavia, includes a 33rd ranking in Web traffic in Finland, 46th and 49th rankings in Denmark and Norway, respectively, and 78th in Sweden.

About 80% of Netflix’s U.S. visitors seek streaming content, while 20% seek disc rental data.

Regardless, Web traffic doesn’t necessarily mean subscriber growth — a reality Pachter says can’t be ignored.
“Despite recent commentary from [Netflix investor] Carl Icahn, we see few potential strategic acquirers of [the service], and think the stock is overvalued,” he said.


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