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Tuesday, October 25, 2011

Why Netflix shares prices is a lot more expensive now

Why Netflix shares prices is a lot more expensive now ; Back in the summer, when Netflix NFLX shares had topped $300, a common refrain within the investment community was “great business, but way too expensive valuation.”

Now, with the stock trading about one-quarter of that former price tag, it would stand to reason that Netflix at the very least has come down to a more reasonable valuation level – especially considering all of the company’s recent troubles with an unpopular price hike, an on-again, off-again renaming plan for its DVD business and, now, a warning that profitability is going to be crimped over the next few quarters as the company continues to ramp up spending on streaming content even as it deals with an exodus of customers from its DVD business, which still accounts for the majority of earnings.

Oddly enough, a rash of estimate reductions from Wall Street analysts have had the opposite effect of making the stock’s multiple look even more expensive.

Analysts have slashed their estimates for the company.

Netflix shares were down nearly 35% to $77.50 early Tuesday afternoon.

According to a tally by MarketWatch, at least 26 brokers have scaled back their foerecasts dramatically for the current quarter as well as for the 2012 fiscal year. The average 2012 EPS estimate among those who adjusted their targets Tuesday has plunged from $6.16 to $1.75.

Because of the effect of a dramatically lower denominator, the stock’s current price puts Netflix shares at a multiple around 44-times the average of projected earnings for 2012. Before Monday’s disappointing earnings report, Netflix shares were trading about 19 times the consensus forecast for 2012.

And estimates for 2012 all literally all over the map, with some analysts still expecting earnings for the year to top $5 per share, while others are projecting a small loss for the period. Michael Pachter of Wedbush Morgan noted the difficulty in projecting results for the period, with the unknown effects of subscriber loss as well as possible spending for new streaming content that is hard to pin down. He noted that “with management holding all of the cards and steadfastly refusing to show them to anyone, consensus becomes nothing more than an uneducated guess.” source blogs.marketwatch.com For the latest updates PRESS CTR + D or visit Stock Market news Today

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