Why Netflix (NFLX) Is Falling Today

NEW YORK (TheStreet) -- Netflix (NFLX) fell 3.5% to $326.08 Wednesday after an appeals court's decision to throw out the Federal Communications Commission's (FCC) Net Neutrality rules.

Should the FCC fail to get new net neutrality rules in place, Internet Search Providers (ISPs) can charge companies like Netflix for all data transmitted over their network, according to Wedbush analyst Michale Pachter. In a note, Pachter estimated that each hour of 1080p content streamed to a 40"-50" TV consumes 6.5GB worth of data. If ISPs choose to charge extra for services that use such large amount of data, Netflix's prices could increase according to Pachter.

Pachter expects the FCC to appeal to the Supreme Court, however.

Analyst firm Pacific Crest also weighed in on the net neutrality concerns, saying ISPs likely won't do anything to negatively impact Netflix or other services like Amazon (AMZN). Doing so would be a public relations nightmare according to the analysts. Broadband providers are more likely to throttle speeds for illegal downloads through services such as BitTorrent, they said.

TheStreet Ratings team rates NETFLIX INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate NETFLIX INC (NFLX) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 8.1%. Since the same quarter one year prior, revenues rose by 22.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 300.00% and other important driving factors, this stock has surged by 251.42% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • NETFLIX INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NETFLIX INC reported lower earnings of $0.29 versus $4.17 in the prior year. This year, the market expects an improvement in earnings ($1.72 versus $0.29).
  • Despite currently having a low debt-to-equity ratio of 0.42, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that NFLX's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.59 is low and demonstrates weak liquidity.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Internet & Catalog Retail industry and the overall market, NETFLIX INC's return on equity is below that of both the industry average and the S&P 500.

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