Analyst cuts Netflix estimates in half, says keeping up with HBO won't be cheap

Since hitting a rough patch in 2011 with its failed decision to spin off its DVD business, Netflix (NASDAQ: NFLX) has, remarkably, embarked on a period of huge growth while keeping its market capitalization rising steadily.

According to media analyst Michael Nathanson, however, Netflix's quest to compete with HBO globally by increasing original content production, and aggressively seeking worldwide distribution rights to acquired content, is going to take a toll on earnings in the short term.

"This practice is consistent with how HBO has operated for years, but it will not be cheap or cash flow friendly at the start," Nathanson writes. "It's the right thing to do, but we don't think the market appreciates the costs involved."

Nathanson is halving Netflix's projected earnings per share (EPS) for 2015 from $5.30 to $2.40. He's also slicing EPS for 2016 from $8 to $3.60.

As Nathanson notes, Netflix plans to triple its amount of original programming to 320 hours and has just raised $1.5 billion to fund that expansion. The SVOD service also has two years before it completes its aggressive global expansion.

For more:
- read this Feb. 9 MoffettNathanson investor note (sub. req.)

Related links:
Netflix, Amazon, Hulu drive 12.7% drop in live TV viewing in January, analyst says
Netflix's Hastings agrees 25 Mbps should be the broadband definition
Sarandos says Netflix will sustain up to 20 original scripted shows a year
Netflix touts HDR video amid bullish Q4 earnings call

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