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Analyst: Netflix Catalog Spending May Hurt Margins

21 Jan, 2011 By: Chris Tribbey

When it reports its fourth-quarter 2010 results Jan. 26, Netflix should hit the high end of analyst estimates for revenue and earnings per share, according to Michael Pachter, analyst with Wedbush Morgan Securities.

However, despite increased subscriber growth (estimated at 19.7 million) and benefiting from the closure of brick-and-mortar stores, heavy spending on its streaming catalog could be a drag on Netflix’s margins, Pachter wrote in a note to investors.

“We believe that Netflix will be challenged to grow at its current pace for more than another year, and we expect its premium valuation to contract,” he wrote, listing the company’s stock at underperforming with a 12-month target price of $78.

Wedbush estimates Netflix’s revenue for the quarter to hit about $601 million, with earnings per share of 75 cents, higher than the analyst consensus of $597 million and 71 cents, respectively.

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