Netflix Inc. (NFLX), the world’s largest video-subscription service, fell the most in more than two months after Bank of America Corp. analysts downgraded the stock, citing concerns about the health of the domestic streaming business and a recent run-up in the shares.
The stock tumbled 11 percent to $65.53 at the New York close, the biggest drop since July 25. Bank of America analysts led by Nat Schindler downgraded the shares to underperform from buy. The Los Gatos, California-based company had gained 6.1 percent this year through Oct. 8.
Netflix’s “soft” target earlier this year, when it predicted 7 million net new subscriptions in 2012, may have been ambitious, the analysts said. Fewer than the 6 million additions that Wall Street estimates are modeling could hurt the stock, the analysts said. The company is also facing increased competition both in the U.S. and internationally.
Bank of America predicts that “domestic streaming subscriptions will plateau sooner than expected, pressuring 2013 estimates.” The analysts project Netflix to have 33 million domestic-streaming subscribers next year, up from about 23.9 million at the end of the second quarter.
Additionally, there’s “a likelihood that content prices will be increasing due to competition and Netflix’s exclusive and original content emphasis,” they wrote.
Bank of America had upgraded the shares to buy from underperform in August, citing international expansion, smarter spending on content and rising domestic profit, combined with the drop in the stock following the company’s second-quarter results.
In the most recent note, the analyst said that the stock, as of Oct. 8, had surpassed Bank of America’s $72 price target. Since Oct. 2, Netflix had gained 30 percent through yesterday as Citigroup Inc. cited improvements in its customer-satisfaction rating and Morgan Stanley upgraded the shares, saying competition from Amazon.com Inc.’s Prime Instant service is “overblown.”