• by Ross Fadner , July 2, 2012

Morningstar Analyst Michael Corty on Monday slashed his fair value estimate of streaming media provider Netflix to $55 from $80. The stock is currently trading at $68.

Most of the reason for the downgrade comes down to the company’s international expansion, which Corty claims is “the worst decision the company has made.” The move, he says, is predicated on the assumption that Netflix’s success in the U.S. and Canada can easily translate across the world.

“It won’t,” Corty says. “Domestically, the company had a known brand before rolling out its streaming service. This head start does not exist overseas, where Netflix must demonstrate how it will attract and retain customers. We think the international business will incur operating losses for the next several years at a minimum and will struggle to generate meaningful profits.”

He adds that content creation and distribution are much more consolidated in international markets. As such, capital spent overseas, particularly in Latin America, is a “waste” that “depletes Netflix of the dry powder it will need to defend market share from competitors to its domestic service.”

Indeed, Corty notes, as others have before, that content owners hold all the cards when renegotiating content deals with Netflix, which is precisely why they only offer short-term deals.