Once Bull, Now Bear: Needham's Martin Explains Netflix (NFLX) Stock Downgrade on CNBC
Bloomberg News
NEW YORK (TheStreet) -- Needham Managing Director Laura Martin further discussed her firm's decision to downgrade Netflix (NFLX) - Get Report stock this morning to "hold" from "buy" on CNBC's "Power Lunch" Tuesday.
The downgrade is a result of the U.K.'s vote late last month to leave the European Union, which will make Netflix especially vulnerable to Europe, Martin explained.
Post Brexit, the Internet television network provider may have to abide by new European rules, which have been proposed by the EU in the wake of Great Britain's departure, she continued.
One proposed rule would force Netflix to spend about 20% of its revenues, generated in Europe, on advertising exclusive content created by the countries within the EU, Martin stated.
"That sounds crazy," CNBC's Tyler Mathisen commented.
"Welcome to socialism," Martin replied. Currently Netflix spends 1% of its revenues on all European content "so it would have to step up its spending for Italy, France, Portugal."
Another negative impact Brexit might have on Netflix is that the costs in Europe are denominated in U.S. currency, which is good right now as the dollar continues to strengthen. However, the revenues generated from EU countries such as Italy and Spain are all denominated in local currency, which took a downward turn when the Brexit was first announced and is still at risk due to the uncertainty surrounding the vote, Martin continued.
Meanwhile, shares of Netflix are rising 1.38% to $98 late this afternoon after the company announced a deal with Comcast (CMCSA) which allows its streaming services to be put on the media company's X1 set-top box.
Separately, TheStreet Ratings rated Netflix as a "hold" with a score of C+.
The primary factors that have impacted this rating are mixed. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and increase in net income.
However, as a counter to these strengths, TheStreet Ratings also finds weaknesses including generally higher debt management risk, disappointing return on equity and weak operating cash flow.
You can view the full analysis from the report here: NFLX
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.