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Analyst: Wall Street Should be Concerned about Neflix's Price Increase

Netflix’s hefty price increase provoked outrage among many of its subscribers, but Wall Street appeared to welcome the move Wednesday. Shares closed up and J.P. Morgan initiated coverage of the name with an ‘outperform’ rating and a $340 price target.

But not everyone on the Street has been bullish Netflix . In fact, Janney Capital Markets analyst Tony Wible believes investors should be concerned about the internet company’s latest move.

“They’re increasing price out of necessity,” he told the Fast traders Wednesday. “I don’t think the company really would have wanted to have this kind of consumer backlash from the price increase.”

Wible said the company is losing money and is faced with $2 billion of off-balance sheet obligations that start to come due this year.

“I’m just concerned Netflix will need to add about 30 million streaming subs at in incremental costs in order to pay for those off-balance sheet commitments.”

Neflix’s accounting issues were the reason Wible downgraded Netflix to ‘sell’ from ‘neutral’ with a $170 fair value back in April.

Wible thinks the company would have to get 160 million subscribers and a 15 percent margin to generate the earnings per share to justify the current share price.

While he doesn’t doubt NFLX is growing, he “doesn’t think they will have 160 subs in a short period of time.”

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