Netflix Downgraded To SELL: Amazon Deal Won't Happen, Says UBS

Reed Hastings with DVDs

Netflix just got downgraded to SELL by UBS analysts Brian Pitz and Brian Fitzgerald.

Why?

  • They believe that speculation about an Amazon buyout is “unfounded.”
  • Why? State taxes: Amazon would have to start charging sales tax for everything it sells in states where Netflix has distribution centres, which Amazon doesn’t want to do. Netflix has approximately 44 centres in 30 states.
  • But: If all states start requiring sales tax to be charged for online distribution centres, this point could be moot, the analysts admit.
  • “Though we fundamentally like the company and its hybrid DVD/streaming strategy, we believe the current valuation (33x ’11 EPS, 16x ’11 EBITDA) includes a premium for an acquisition that we do not believe will occur in the medium term,” the analysts say.

UBS has a $90 price target on Netflix. NFLX shares are up 4% today to $112.50.

We’d note that betting against Netflix has not proven to be a good bet in the past.

Netflix shares do trade at a high multiple, but months of gains make the WSJ’s Martin Peers look even more ridiculous for his call almost 14 months ago that Netflix’s “stock-price bubble may be close to bursting.”

That was in late March, 2009, when Netflix shares were trading in the $40s. “Netflix fans take note: A correction is looming,” Peers wrote.

Shareholders who bought in that day have more than doubled their money.

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