Netflix: Rising Costs To Weigh On Shares, Says Canaccord

Shares of Netflix (NFLX) have given back part of yesterday’s 10% jump, currently down $3.01, or 4.3%, at $66.94.

Some good news yesterday — an upgrade on the stock at Susquehanna Financial — was followed by some bad news from Standard & Poor’s, which cut its rating on the company’s debt.

Canaccord Genuity’s Jeff Rath this morning reiterates his Sell rating on the stock while cutting his price target to $57 from $60 after digesting the implications of last week’s capital raise by the company, which saw Netflix selling $200 million of common shares and $200 million of convertible debt.

The capital raise was positive, because it removes worries over cash, but it was a bigger amount than he’d expected, and he’s worried that larger amount “confirms pressure on NFLX will continue.”

Rath assesses the impact of rising costs for the non-U.S. markets for the company’s streaming video:

International contribution losses could exceed $100M in Q1/12 alone as Canada returns to losses, UK/Ireland start to build and Latin America continues to ramp. Additionally, content purchases are expected to exceed amortized expenses as NFLX secures baseline content deals in support of launches in Latin America and UK/Ireland.

Rath cut his 2012 estimate for GAAP EPS to a loss of 13 cents a share from a prior 3-cent estimate, while maintaining his revenue estimate for $3.59 billion. For 2013, he now sees a profit of $2.84 per share, down from a prior $2.97.

Bottom line, he sees the bad news keeping a lid on investors’ enthusiasm for the next six months or more:

Near-term catalysts (consolidated losses, negative cash flow and potential negative Street estimate revisions) suggest a large discount will be applied to any forward projections for NFLX probably until mid-2012.