BofA on Netflix: Take the Money and Run!

Netflix Inc. (NASDAQ: NFLX) had risen handily on the back of two analyst upgrades, sending shares up from $56 to about $73.50 in less than a week. The momentum was strong. Now this morning comes an analyst call from Bank of America Merrill Lynch that is killing that momentum.

Bank of America downgraded the rating all the way down to Underperform from Buy with a price target of $72 per share. It says basically, "Take the money and run." The report also sees risks to its streaming additions as concerns have grown surrounding the health of the domestic streaming business and also on the timing of international streaming profitability.

The rise apparently has just been too much to endorse. Bank of America said, "With the stock increasing 31% over the past two-weeks, we now believe the risks outweigh the reward heading into Q3. We see net additions significantly below estimates as the biggest risk to the stock."

The report says that Netflix appears to have reached the second inflection point on its penetration curve. It also said that domestic streaming subscribers will plateau sooner than expected and that will pressure 2013 estimates. "The bears still have plenty of long-term concerns to sink their teeth into the likelihood that content prices will be increasing due to competition and Netflix's exclusive and original content emphasis, which could pressure streaming Margins."

Netflix shares are down 3.5% to $70.90 in premarket trading.

JON C. OGG