Analyst Eric Wold still skeptical of Netflix; maintains sell rating

One of my most reliable Netflix sources has been Eric Wold, analyst at B. Riley Caris & Co. Count Wold among those who still isn’t convinced that Netflix is a smart long-term play.

Eric Wold, Analyst at B. Riley Caris

Eric Wold, analyst at B. Riley Caris

The online video provider reported very strong fourth-quarter results Wednesday, as greater adoption of smartphones, tablets and smart TVs increased demand for the company’s streaming TV shows and movies during the period, and that momentum has continued into Q1.

Wold doesn’t deny the trend, pointing to an NPD study showing that 40% of connected households used Netflix during the December quarter.

“Given the company’s position with [consumer electronics] manufacturers, consumers will be drawn to Netflix as a first choice,” he said in an email late Wednesday night. “But I continue to believe as other SVOD options are offered consumers with various bundling features, [they]  will be drawn to other options that fulfill more of their entertainment needs. With Redbox Instant launching in Q1, this could start to have an impact starting in Q2.”

Redbox Instant is the joint streaming venture between Coinstar-owned Redbox, the DVD-rental kiosk specialist, and telecom titan Verizon Communications. While Redbox Instant will focus on newer releases, allowing Netflix to offer a deeper library of content, some of Redbox’s DVD customers undoubtedly received online-video ready devices for the holidays, and will be happy to at least experiment with the company’s foray into streaming.

While Netflix CEO Reed Hastings continued to dismiss alternatives such as Amazon, Redbox Instant and Hulu for having just a fraction of Netflix’s streaming selections (not even including its sometimes forgotten DVD library, which was after all it’s claim to fame in the first place), Wold takes the view that Netflix’s larger and deep-pocketed rivals are simply waiting for their chance to pounce — and have already made deep cuts into Netflix’s growth rate.

“If someone offered you $2.00 for almost an entire year, and then towards the end of the year said they would only give you $1.43, you’d be upset, ” Wold said. “But then, they surprise you and hand you $1.52 at the end of the year….are you happy? No…because you originally were supposed to get $2.00. That’s the same as Netflix guiding to [2012 growth of] 7.0M subscribers, lowering the guidance to 5.0M and then reporting 5.3M.

“There is no reason why the shares should have rallied well above where they were when management was pushing 7.0M subscribers. This is all optics and the business trends have not improved. We still believe competitive risks will emerge this year and impact growth trends.”

Wold has a sell rating on Netflix shares, with a price target of $45. The stock has soared 83% since late September, to the $103 range.

— David B. Wilkerson