Credit Suisse downgrades Netflix (NFLX) from Outperform to Neutral on concerns that management’s decision to ramp digital content will put pressure on gross margins. Higher costs from the switch to Blu-Ray are also expected to take their toll. Highlights:
Netflix continues to benefit from a more benign competitive landscape as Blockbuster struggles to rationalize its online operations. In addition, we expect net subscriber additions at Netflix will continue to be strong as stores close and the relative value of Netflix’s offering improves. These benefits should manifest in the form of lower levels of SAC and churn at Netflix. However, in our opinion, with the stock up 70% since our December note titled “Minority Report,” we believe shares of NFLX reflect these improved trends and a more realistic view of the company’s long-term prospects.
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