Wedbush analyst Michael Pachter has a price target 64% below where the stock is currently trading.
Netflix investors are blissfully ignoring the streaming giant’s ballooning cash burn, according to one of the company’s biggest bears on Wall Street.
"Investors are oblivious to the fact that Netflix burns cash at an alarming rate," Wedbush Securities analyst Michael Pachter told Business Insider. His price target of $110 is a full 64% below the stock’s $310 price.
Pachter expects Netflix to borrow another $2.5 billion this year, and another $3 billion in 2019, adding to its already growing debt and negative free cash flow growth.
"If free cash flow continues to get worse, the debt balance could approach $15 billion, or around $30 per share for a company that "earns" $3 to $4 per share annually," he said. "What’s not to love about that?"
Netflix’s massive spending has been largely well received by Wall Street as it ramps up content offerings. Netflix CFO David Wells said earlier this year that the company expects to spend a staggering $8 billion on about 700 new original shows in 2018.
In February, the company poached Ryan Murphy, the well-known Hollywood producer of "Glee" and "American Horror Story, from 21st Century Fox with a five-year contract worth $300 million. He starts in July.
The investments are likely to keep pace with competitors like Hulu, which recently nabbed popular shows like "30 Rock" and "Will & Grace."
HBO, on the other hand, has taken a markedly different approach.
"In a crowded marketplace, it matters how you put things out into the world," the company's president of original programming Casey Bloys told The Hollywood Reporter this week. "We don’t put a new show out every week. We take our time, and we try to make every show feel like an event — something special because they are special to us."
Wedbush's Pachter says Netflix's expensive investments could end up hurting the company in the long run — even if they do create a content moat with shows no competitor has.
"The vast majority of consumption typically occurs within the first six months of availability, due in large part to the fact that users can binge on the content, with multiple episodes and/or seasons available at the same time," he said in January. "The company’s content library has grown at a steep pace, with a clear disconnect between consumption and amortization."
Netflix is the top-performing of the so-called FAANG mega-cap tech stocks so far in 2018, up an astonishing 54%. Second-place Amazon is up just 22%.
The company will report it’s first quarter earnings on Monday, April 16 after markets close.