Commentary

Netflix, Amazon, Yahoo Taking Hits On Wall Street


The new year is starting with some bad news for Netflix. Baird Equity Research this morning downgraded the stock from “outperform” to “neutral” this morning, and from there, it was katy bar the door.

Shortly after 10:30 this morning, Netflix was trading down by around 6%, and amid a down market today--off 450 points at mid-morning--Netflix was among the most conspicuous nose-divers.

According to an account from Barron’s, Baird’s William Power readjusted his price target to $1115 from $128 based, in part based on a survey of 3,000 U.S. residents that showed “flattish” growth.

“In our Q4 U.S. survey, 46% of respondents stated that they were Netflix streaming subscribers vs. 47% in Q3 and 35% a year ago. This appears to point to more flattish Q4’15 U.S. subscriber progress, and, if accurate, potentially raises some questions around the U.S. subscriber growth trajectory,” Power wrote. “We would also note that Netflix’s $1 price increase went into effect for new subscribers on October 8, which could have had a greater impact than we originally anticipated.”

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I don’t know enough about Netflix’s subscriber growth or what rattles investors, but this, by itself, seems a little premature because, as Power otherwise pointed out, Baird’s consumer surveys don’t appear to be ironclad trend documents.

“As our survey is conducted online, we generally view results as representative of broadband-connected homes,” Power writes, and notes they typically overstate penetration levels.

On the other hand, Netflix stock advanced 134% in 2015, making it the top S&P 500 performer, so cooling off wouldn’t seem to be so unusual, especially on a lousy day on Wall Street. Likewise, Amazon shares are down significantly today.  Monness Crespi Hardt lowered its rating to neutral; as Motley Fool points out, Amazon’s stock zoomed 119% in the last year, so it just might be due for a cooling off, too.

The turndown for Netflix comes as a financial meltdown in China spooked the market. Mainland China stock shares sunk 7% and circuit breakers (brand new in China) halted trading. Economic reports say China’s economy sank dramatically last month, and that kind of talk makes Wall Street fear a worldwide slowdown. Tensions in the Mideast are also giving investors the jitters.

That China situation probably isn’t helping Yahoo, either, because of its increasingly vital interest in Alibaba, which stands as Yahoo’s major up-side. 

Also, according to the New York Post’s Claire Atkinson, dissident Yahoo investors are pushing to have the company sell its Internet business instead of splitting it off into its own company, as perpetually-beleaguered Yahoo CEO Marissa Meyer intends. The Post reports hedge fund Starboard Value intends to wage a proxy battle and nominate its own board. Both situations are creating a stir in the stock market today, where Yahoo is also off more than 6% too.

pj@mediapost.com
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