A leaked email shows a Wedbush executive urged the firm to drop Netflix coverage because its analyst's call has been wrong for years

CNBCMichael Pachter, analyst at Wedbush.
  • A Wedbush executive two years ago urged the firm’s equity-research team to stop covering Netflix because he was concerned with the intent of the research analyst following the stock, according to an email obtained by Markets Insider.
  • Tim Podell, the vice president of investments at Wedbush Securities, sent the email to the firm’s equity-research team and Tony Lucas, a vice president and officer manager.
  • Michael Pachter, the analyst who covers Netflix at Wedbush, told Markets Insider that he does not hold a bearish price target on the name for notoriety of any kind, but does so because he thinks the stock is overvalued.
  • Visit Markets Insider’s homepage for more stories.

In late 2017, an executive at Wedbush Securities, the California-based financial-services firm, sent an email pleading with his colleagues to stop publishing investment research about the streaming giant Netflix.

“The short call of NFLX is one of the worst in history, I believe at this point the analyst is only doing this for fame which is going to completely backfire,” Tim Podell, the vice president of investments at Wedbush Securities, wrote in an email to the firm’s equity-research team and Tony Lucas, a vice president and branch manager, begging them to stop publishing Netflix research written by analyst Michael Pachter. At the time, Pachter held a $US93 price target for the stock – about 50% below where shares were trading.

Podell added: “The call has become a joke in the industry and media, as well as my clients ask me all the time what is this guys deal?”

In the two-year-old email obtained by Markets Insider, Podell appears to raise questions about the intent of Pachter, the high-profile bearish analyst covering Netflix and other technology stocks.

An uber bearish view on Netflix

Pachter, the longest-tenured research analyst at Wedbush with nearly two decades at the firm, has become known for his uber bearish view on Netflix.

He’s one of fourWall Street analysts covering the company who currently rate Netflix the equivalent of a “sell,” compared with 30 who say “buy” and 11 who recommend “hold,” according to analysts polled by Bloomberg.

His current $US183 price target – though he’s bumped it up in recent quarters – is also 50%below current levels. He has always cited the company’s cash burn as one of the chief reasons for his bearish outlook.

When Pachter downgraded the stock in 2012, on the belief Netflix would attract competition from its suppliers like Disney, shares were trading between $US7 and $US13 apiece. He’s been bearish ever since, but has raised his price target along the way.

The stock is now up around 4,800% since the low that year, and the entertainment space has undergone a tectonic shift as consumers increasingly prefer streaming content over traditional cable subscriptions.

Considering the stock’s huge gain and Netflix’s relative dominance in the streaming space – even amid rising competition and new entrants – Pachter’s call for shares to drop so dramatically has been seen as contrarian in nature. Equity analysts tend to be a bullish bunch, so oftentimes bearish analysts can stick out, particularly with widely followed stocks like Netflix.

Pachter is widely quoted in the financial media, including by this publication and by this reporter in separate articles. His coverage universe also includes technology stocks like Alphabet (Google), Facebook, and Twitter.

“Please understand in this industry it is about being right not just getting our name out there,” Podell wrote, before adding a final plea to consider dropping Netflix coverage. “Street cred is very important in this industry.”

‘We like to think of our bear thesis as more of a broken clock’

In Pachter’s report to clients out last week, on the back of Netflix’s quarterly earnings, he and his team said they’re sticking to their guns. “Instead of being a broken record, we like to think of our bear thesis as more of a broken clock; we’re bound to be right over time,” he wrote.

In an interview with Markets Insider on Tuesday, Pachter defended his call and said he in no way rates Netflix in a fashion that would garner notoriety.

“I don’t do this because I’m looking for fame, I do it because I genuinely think the stock is overvalued,” the analyst said.

Pachter also emphasised what he sees as a culture of collegiality at the firm, and said that he’d forgotten about the email until reached for comment.

“Our firm is a very tolerant firm,” he said. “We foster a collegial atmosphere, so his email was really out of the mainstream for how we operate.”

A spokesperson for Wedbush said the firm did not have additional comment.

Here is the email as it appeared in full:

The Brokers at the Firm would like us to stop covering NFLX. It has been 4 years + of a VERY VERY wrong call. The call has become a joke in the industry and media, as well as my clients ask me all the time what is this guys deal?

The short call of NFLX is one of the worst in history, I believe at this point the analyst is only doing this for fame which is going to completely backfire. Please understand in this industry it is about being right not just getting our name out there. Street cred is very important in this industry.

Please please consider dropping coverage of NFLX please…..

Thanks Tim


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