Four Reasons to Be Bearish on Netflix

NEW YORK (TheStreet) -- Netflix (NFLX) gained in overnight trading following its announcement that earnings for the quarter ending in March were 86 cents per share, three cents ahead of estimates, on revenue of $1.27 billion, 24% higher than a year ago.

Netflix shares have more than doubled in value over the last year, although they fell more than 20% recently as investors have switched from growth stocks to value plays.

Still, observers who don't work at TheStreet are very bullish on the stock, with Sam Gustin of Time Magazine authoring a piece called "Four Reasons to be Bullish on Netflix."

Well, here are four reasons to be bearish:

First, valuation. Netflix currently trades at an Amazon-like price-to-earnings ratio of 131. Even after the stock's recent decline of more than 20%, that's way too rich for the current market.

Even Amazon (AMZN) itself can no longer sustain such lofty valuations. It's down 17% so far in 2014. Netflix, meanwhile, is down just 5.3%. It has not fully adjusted to the new market environment.

And speaking of Amazon, few analysts understand that even at $99 a year, Amazon Prime is pricing its video library at a Netflix price, and throwing in free shipping to boot. That's some serious price competition. Amazon also has original programming, just as Netflix does, and devices under its own control, including the Kindle Fire line, something Netflix does not have.

Second, House of Cards. Netflix says in its earnings letter the series "attracted a huge audience that would make any cable or broadcast network happy." Pretty words, but where are the numbers? Netflix has them, but won't say what they are.

Without numbers we can't make an apples-to-apples comparison between how Netflix is doing and how other networks, such as HBO, are doing. It's all smoke and mirrors. That may be great for Frank Underwood, the Kevin Spacey lead in the House of Cards series, but for investors it's not so great.

Third, the price hike. Netflix says in its earnings letter that it added 2.25 million subscribers in the U.S. during the first quarter of 2014, and 4 million overall. How are the next four million going to react to paying more for the service than current customers? The nature of the price hike seems geared toward discouraging growth, at least in the short term, until the pain is shared by all customers.

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