Netflix Stock Falls Through Key Support Level By PATRICK SEITZ Posted 05:54 PM ET
Netflix shares fell through a key support level in heavy trading Wednesday on rumors and a bearish analyst report.
Netflix stock dropped 7% in the first hour of trading on rumors that activist investor Carl Icahn had cut his stake in the subscription streaming video service. But Icahn, who bought a 10% position in Netflix last October, told CNBC that he had "not sold one share of Netflix since buying it."
Netflix (NFLX) recovered a bit, but ended the regular session down 3.9%. It was the fifth straight day of decline for Netflix. The stock found support Tuesday at its 50-day moving average, but broke through that trend line on Wednesday.
Valuation and competitive concerns are weighing on the stock, several analysts said.
Rich Tullo, an analyst with Albert Fried & Co., issued a bearish report on Netflix Tuesday and reiterated his views in a follow-up report Wednesday. The bullish investor perspective on Netflix has transitioned from a "questionable takeover story to an untenable content liability growth story," Tullo wrote. "We think the shares are significantly overvalued and should be sold."
Tullo rates the stock underweight, or sell, with a price target of 68. Shares closed at 169.74 in the stock market today.
Netflix has "an uncompetitive cost structure" and is spending heavily on content, including original programming like "House of Cards." It competes not only with other over-the-top Internet TV services like Hulu and Amazon.com's (AMZN) Prime Instant Video, but cable channels like AMC (AMCX) and Time Warner's (TWX) HBO, which are promoting their own exclusive shows. AMC has "The Walking Dead" and "Breaking Bad" and HBO has "Game of Thrones" and "True Blood," for instance.
Meanwhile, Intel (INTC), Apple (AAPL) and others are eyeing the rapidly changing video distribution landscape, looking for an in.
Netflix stock had risen 106% this year through last Tuesday, March 26, before starting its recent slide. Profit-taking likely fueled the sell-off, Sterne Agee analyst Arvind Bhatia told IBD.
"The stock has had such a nice run that a small pullback is not surprising," he said. "It's probably profit-taking."
But Brett Harriss, an analyst with Gabelli & Co., said Netflix's valuation "is still incredibly high."
"At this point it's trading on the popularity of its product, not the profitability of the underlying business," he told IBD.
The stock also could be coming down on investor speculation about weak subscriber additions at the end of the first quarter, he says. Netflix is due to report Q1 results on April 22.
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