Netflix shares tumble after downgrade

January 05 03:05 2016

Shares of Netflix tumbled Monday after a stock research firm downgraded the stock on concerns of rising production costs and slowing growth in the U.S. Robert W. Baird & Co. cut its rating to “neutral” from “outperform” and set its price target to $115 from $128. Shares fell 7% Monday to $

With TV fans increasingly cutting the cord, Netflix has seen its shares soar in recent months as more customers worldwide sign up for its streaming service. But TV networks and film studios are focusing on providing their own streaming services and keeping their best content from third-party distributors. While that drove Netflix to fund production for more original series to retain customers, the strategy has been costly.

In October, Netflix reported third quarter subscriber growth and revenue that fell short of Wall Street expectations. Netflix added more than 3.6 million new subscribers worldwide, surpassing its overall forecast. But it added 880,000 in the U.S., short of its target of adding 1.15 million. “The push towards increased original programming and content costs generally could pressure profitability and cash flow more than expected,” wrote William Power, an analyst at Baird, in an investor note.

Some investors also may be looking to cash out after Netflix’s torrid run in the market last year. With shares up about 145%, it was the best performing S&P 500 stock last year. In a letter to shareholders following its third quarter earnings release in October, Netflix CEO Reed Hastings also addressed “the competitive landscape” it faces, citing Hulu’s new monthly subscription service, HBO Go’s expansion into Latin America and Amazon’s reported price tag of $250 million for Top Gear host Jeremy Clarkson’s new series.

Netflix CFO David Wells also told shareholders and analysts in October that Netflix was “on pace to use about $1 billion” in 2015 — much of it for acquiring and funding content — and sees “no indications that that would shrink next year.” “We may be back in the market (in 2016),” Wells said.