Despite a successful 2012 that ended with Netflix, Inc. (NASDAQ:NFLX) stock up by almost 30 percent, Wedbush analyst Michael Pachter predicts that Netflix will be unprofitable in the coming year.
Pachter, who works for Wedbush Securities, believes that the company’s stock is overvalued because investors are ignoring some obstacles the company will face in the future.
Pachter made the predictions in a note on January 2. He said: “Consensus estimates for domestic earnings power appear overly skewed in favor of domestic streaming, which we think generates $1.20 income per share, and we believe that Netflix’s DVD business ($3/share) will decline as international expansion (a loss of $4.20/share) continues, making profitability in 2013 unlikely.”
Netflix may also face further problems in 2013 due to increasing competition from companies such as Amazon and Redbox Instant. Redbox Instant recently launched a Beta service, and is expected to go live by spring.
Around 80 percent of Netflix, Inc. (NASDAQ:NFLX)’s US subscribers want streaming content, while the remaining 20 percent seek disc rentals. Both of these services suffered setbacks due to technical difficulties over the holidays.
It’s true that Netflix does generate most of its traffic domestically, with the website sitting in 19th place on the Alexa domestic rankings for about three months now. Over the holiday season, Netflix saw a considerable boost to its traffic, with an increase of more than 30 percent.
However, Netflix has had less impact internationally, its internet traffic ranks at 39th place in Canada, and in 114th for Mexico and Brazil – regions the company has earmarked for capital-intensive expansion.
Meanwhile in the rest of the world, Netflix, Inc. (NASDAQ:NFLX) launched in Scandinavia in the fourth quarter, and managed to secure a 33rd place ranking in Finland, 46th and 49th place rankings in Denmark and Norway respectively, and 78th place in Sweden.
Web traffic rankings do not necessarily equate directly with subscriber growth potential, but despite this Pachter believes the stock is overvalued: “Despite recent commentary from [Netflix investor] Carl Icahn, we see few potential strategic acquirers of [the service], and think the stock is overvalued.”
Netflix, Inc. (NASDAQ:NFLX)’s shares currently stand at $96.59.