After recently receiving analyst upgrades, including one on Monday, Netflix, Inc. (NASDAQ:NFLX) saw its stock rise from $56 to $73.50. It gained some momentum, and its future was a looking a little brighter. But now, one day later, a Bank of America Corp (NYSE:BAC) analyst is saying not so fast.
On Tuesday, analyst Nat Schindler downgraded the stock to an "Underperform" rating from "Buy", with a $72 per share price target.
Schindler wrote in his research note via MarketWatch, “Throughout the quarter, our concerns have grown surrounding the health of the domestic streaming business and timing of international streaming profitability. With the stock increasing 31% over the past two weeks, we now believe the risks outweigh the reward heading into Q3.”
In pre-market trading the stock fell 4 percent on the news, and has continued its decline, now down 8.17 percent to $67.57.
But there's additional concerns in the report. Schindler noted that the company, on its penetration curve, has hit its second inflection point, reported 24/7 Wall St. Furthermore, domestic streaming subscribers will level out earlier than thought, and subsequently affect 2013 estimates.
Schindler added, "The bears still have plenty of long-term concerns to sink their teeth into the likelihood that content prices will be increasing, due to competition and Netflix's exclusive and original content emphasis, which could pressure streaming Margins."
Along with Bank of America Corp (NYSE:BAC)'s take on the stock, others believe there are concerns.
According to CNBC's Herb Greenberg, there's the Chanos Rule.
This comes from renowned short-seller, Jim Chanos, and it states that any company with fast growth eventually incurs an “all in” level. Investors really want a certain a product, but it comes to a point that growth comes from either "fill-in, replacement, or gifts."
For Netflix, Inc. (NASDAQ:NFLX), explains Greenberg, in the last quarter its membership included 30 million total customers; this encompassed DVD and the 23.9 million customers with streaming service-only subscriptions.
It is getting awfully close to activating the Chanos Rule, and there's more data to support this.
On Tuesday, Consumer Edge Research said it thinks Netflix’ “membership levels” could have peaked in the third quarter, along with evidence of a household slowdown. In addition, ComScore, Inc. (NASDAQ:SCOR)'s September Netflix, Inc. (NASDAQ:NFLX) traffic data was 28.7 million unique users, a 2.6-percent fall from the previous year.
This decline suggests a peak web traffic between 28 million to 30 million, wrote Greenberg.
And, just to add some more fuel to the fire, is Netflix's, Inc. (NASDAQ:NFLX) recent original programming. If it succeeds, the company could see additional subscribers, but if not, it may stay where it is, hence a peak.
This may be further evidence of the Chanos Rule.