Baird Downgrades Netflix, Cites High Sentiment, Expectations

• Netflix, Inc. NFLX shares have soared 118.59 percent through 2015, reaching a high of $130.93 on December 4.
• Baird’s William V. Power has downgraded the rating on the company to Neutral, while lowering the price target from $128 to $115.
• Following the stock’s strong performance, combined with the high sentiment and expectations, Power believes that the risk/reward is balanced at the current levels.

Regarding Netflix, analyst William Power noted that Stifel’s quarterly U.S. subscriber survey “suggests potentially weaker U.S. subscriber results for the second consecutive quarter, and while international may beat, we believe much of that is priced in.”

However, investor sentiment and expectations on the company are high, driven by Netflix’s content roadmap, as well as international growth.

“While we remain positive on the company's positioning and long-term growth prospects, key risks include international execution, content costs, and rising competition,” Power stated.

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While cautioning that Baird’s Q4 U.S. subscriber survey was only a directional indicator, Power mentioned that the results suggested sequentially flattish penetration in the United States, rather than the usual sequential increase into the holiday season.

Power expects the company to see 1.3 million paid and 1.48 million total net additions for Q4 in the United States, despite the survey indicating downside potential, or at least limited upside.

Internationally, the company is expected to report 3.1 million paid and 3.4 million total net additions, to which there could be upside.