Michael Pachter on Netflix: ‘Red is the new black’
Despite the popularity of its new exclusive series, Netflix isn't an investment for the long haul, Wedbush Securities Managing Director Michael Pachter said Monday.
"Over the long run, investors are going to get burned on this stock," he said. "Numbers won't lie."
Pachter's price target for Netflix is $215, less than 50 percent of its $451.95 close.
"The reason I have a low price target is—and I hate to use such a bad pun—but red is the new black. Look at their cash flow. It is significantly lower than their net income. They're being valued on an EPS basis, and I think investors are looking through the fact that they've generated negative cash flow in the last nine quarters and yet they're being rewarded as if that's never going to reverse," Pachter on CNBC's "Fast Money."
Netflix missed earnings estimates by a penny on Monday at the close, while revenue was in line with estimates. Many analysts attributed the strength in revenue to continued strength in user growth, as Netflix topped the 50 million streaming subscriber mark.
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"That negative cash flow is an 'investment' in content that has to hit the income statement in the future—and when it does, I think earnings are going to be severely depressed," said Pachter. "I think they're not going to grow earnings the way people expect, and I think the stock price is going to come in pretty hard. I think my number is probably pretty close to what's going to happen."
—By CNBC's Leanne Miller