Michael Pachter Says Netflix's Valuation Is 'Unwarranted,' Raises Price Target To $60

Netflix, Inc. NFLX reported its Q3 domestic and international subscriber additions ahead of expectations. Investors have been focusing on subs growth and seem to have overlooked the company’s FCF burn, Wedbush’s Michael Pachter commented in a report.

He maintained an Underperform rating on the company, while raising the price target from $50 to $60.

Netflix reported its quarterly revenue at $2.290 billion, marginally above the Street estimate of $2.284 billion. EPS came in at $0.12, significantly beating the consensus estimate of $0.06.

Related Link: Netflix Shares Skyrocket On Strong Results, Guidance; Added 5.2 Million Subscribers Globally In Q3

Solid Subs Growth

Netflix added 0.37 million net domestic streaming subs and 3.20 million net international streaming subs during Q3.

“Netflix management attributed the beat to higher acquisition associated with their original programs released during the quarter, specifically highlighting Stranger Things which appeared in July,” Pachter noted.

The GAAP EPS estimates for FY 2016 and FY 2017 have been raised from $0.32 to $0.40 and from $0.36 to $0.55, respectively.

Seems Overvalued

Netflix has been making huge investments into acquitting original and exclusive content. While the company is facing profitability challenges in its international operations, competition is intensifying.

“In addition, cash burn is unacceptably high, and we are skeptical that the company can successfully build a content library that will justify its high level of spending,” Pachter wrote.

Netflix’s shares seem overvalued in view of “the potential for sustained decelerating domestic growth coupled with consistently elusive international profitability, in addition to increased competition,” the analyst stated.