When will the bleeding stop at Netflix?

(Credit:
Netflix)

As Netflix prepares to announce its fourth-quarter earnings later this week, one analyst says only trouble is ahead for the company.

Writing to investors today, Wedbush analyst Michael Pachter says he believes Netflix lost 8 million to 9 million DVD-by-mail subscribers over the second half of 2011, including 2.63 million to 3.63 million subscribers either trading down to streaming-only plans or leaving the service altogether in the fourth quarter. All told, he believes Netflix has 21.3 million U.S.-based streaming subscriptions, 11.15 million DVD subscriptions, and 1.8 million international streaming subscriptions.

So, what does that mean for Netflix’s future financial performance? Nothing good, Pachter says. For 2012, Pachter expects nothing but deepening losses hitting the streaming provider’s income statement, further worrying investors.

Netflix’s trouble, Pachter says, is its “growth all all costs business model.” For months now, Pachter has been saying that the streaming provider shouldn’t be trying to expand internationally. Instead, Pachter argues that Netflix should be getting its own financial house in order before it starts acquiring more subscribers overseas for little or no incremental gain.

“At a minimum, we expect Netflix to lose $100 million internationally next year, and we think that the figure could rise to as much as $250 [million] to $300 million, based upon its Q4 guidance,” Pachter said back in November.

Of course, Netflix sees things differently. The company believes that by expanding internationally, it can grow its business and overcome this year’s expected losses. It did, however, acknowledge in a Securities and Exchange Commission filing last year that if the plan doesn’t work, things could be tough.

“If we are unable to repair the damage to our brand and reverse negative subscriber growth, our business, results of operations, including cash flows, and financial condition will continue to be adversely affected,” Netflix said.

The prospect of even more adversity is the last thing investors want to hear right now. As of this writing, Netflix shares are trading at $100.24, down 45 percent from a year ago. Over the last six months, Netflix shares are down 64 percent. Surely things can’t get worse, right?

Think again.

Pachter believes that over the next 12 months, Netflix’s shares will reach a floor of $45, due to the company’s international growth and rising content costs.

That said, Pachter to far more bearish on Netflix’s shares than some of his colleagues. Earlier today, Piper Jaffray reiterated a $100 Netflix price target, while Bank of America expects the stock price to drop to $85. Sanford C. Bernstein expects Netflix shares to fall to $71 over the next 12 months.