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Analyst Downgrades Netflix on Cost Concerns

18 Apr, 2008 By: Erik Gruenwedel

A day after breaking a record $41-per-share price ceiling in after-hours trading, Netflix Inc. was slapped back to reality after an analyst downgraded the stock due to cost concerns.

Soleil Securities analyst Daniel Ernst placed the Los Gatos, Calif.-based online rental pioneer's stock on “hold” from “buy” citing a variety of reasons, including concerns about capital spending, subscriber growth and the stock's valuation.

Netflix shares April 18 fell more than 5%, or $2.14, to close at $38.56 per share. The stock is up more than 53% since January.

Ernst said Netflix's shares are trading at 32-times earnings projections.

“[Their] cap spending is equal to cash flow, which could be exacerbated by forward purchase costs associated with DVD, digital and Blu-ray,” Ernst said.

Netflix reports first-quarter fiscal 2008 results April 21, which are expected to exceed projections.

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