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Where have all of Netflix's (Nasdaq: NFLX  ) glowing five-star ratings gone?

Shares of the DVD rental service fell this morning, after analyst Barton Crockett from Lazard Capital Markets  downgraded them.

Crockett is concerned about the company's ability to keep growing at a healthy pace, predicting that year-end subscribers clocked in at the low end of the company's guidance of 12 million to 12.3 million accounts.

He's not alone.

Citigroup and Merriman Curhan Ford downgraded the stock last month. You have to go all the way back to the summer to find the latest time a major analyst has upgraded shares of Netflix.

In theory, this is just when Netflix likes its analysts. The company has beaten Wall Street's bottom-line targets in each of the six previous quarters, growing recessionary wings at a time when many consumer-based subscription services struggled.

Analysts fear that the company's strategy of spending to widen its library of streaming flicks and television shows will keep margins in check, but I see it as a great subscriber retention tool.

After all, Apple (Nasdaq: AAPL  ) and (Nasdaq: AMZN  ) want to sell or rent out individual titles. Blockbuster (NYSE: BBI  ) and Coinstar's (Nasdaq: CSTR  ) Redbox kiosks want to rent you physical discs, one at a time. There really isn't a worthy competitor taking on Netflix's smorgasbord approach to digital, where unlimited streaming is available at no additional cost to most of the company's subscribers.

In the meantime, Netflix is aggressively padding its celluloid moat. I'm not a big fan of the second-citizenry implications of its recent deal to give Time Warner (NYSE: TWX  ) four weeks of marketing new retail DVD releases before making them available to its members, but I get that it makes financial sense. If Netflix invests those savings into more streaming options -- even if only half of its subscribers are using the service -- it's not just throwing money away. There will come a time when others take on the Netflix streaming buffet model, and it's simply building a bigger and bigger lead.

Along the way, what does it say about Netflix that it has been able to beat analyst expectations save for a few rare quarters? The company, quite frankly, knows how to manage expectations and align its costs to generate applause-worthy profitability.

Hating on Netflix has been a dangerous pastime. It's not likely it will be any different in the future.

Are you growing bearish on Netflix? Share your thoughts in the comments box below.

Apple,, and Netflix are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 14, 2010, at 2:42 PM, byhycelo wrote:

    Well, I know David loves Netflix, and until he says to dump it, I consider his passion for the company a good sign.

  • Report this Comment On January 14, 2010, at 2:57 PM, Fool wrote:

    As an enduser who just got onboard the streaming train, I would say both Sony and Netflix have great prospects. I bought the last PS3 in town, and was playing blu-ray and streaming netflix the next day. I have no use for the gaming aspect of the PS3 (though my college age son can't believe I went out and bought one, and can't wait to get home on break)

    I will be watching both NFLX and SNE and will probably buy shares in one or both. No one is offering what NFLX is - it seems a screaming buy both from a consumer's and investor's POV. Asa for SNE, they hit a cross-platform home run with the PS3.

  • Report this Comment On January 14, 2010, at 3:33 PM, fredfoolerly wrote:

    I think Netflix merely suffers from analyst follower knee jerk reaction was on a roll, the band wagon jumpers got in...a little "concern" and they jump off. I agree with byhycelo...David has a long track record with this company....they see the potential future in growth..It is a good time to add a few shares.

  • Report this Comment On January 14, 2010, at 4:12 PM, SekouMurphy wrote:

    In another write up, the reported noted that analyst Barton Crockett based his recommendation, in part, on comments made by Reed Hastings (that subscriber growth would be 12 million - low end of Netflix' range).

    I watched the interview online and Hastings said 12 million in passing, not as an absolute number.

    I also checked out website traffic on and wonder whether Crockett is on base for projecting 12 million subs, given that traffic has trended upward since the start of the year. Based on the correlation b/t subs v traffic (total visitors) at the end of '08 to '09, it looks like NFLX will have more than 12 million subs at the end of '09.

  • Report this Comment On January 20, 2010, at 9:32 AM, belihe wrote:

    I wish I could catch MF enthusiasm for Netflix. I was looking at it for purchase too as i am very tired of paying Direct TV so much money. Just looked at amazon reviews though and found that of 48 or so reviews they were either very poor and coming from angry customers or they were excellent, no middle of the roads at all which is strange I think. In almost every case of bad reviews the customers commented that they got great service during the trial which depriciated to horrible service, they also complained repeatedly about deceptive practices, poor and rude customer service, faulty dvds and even retention of their credit card account in Netflix system for 2 years regardless when the service was ended. It scared me off. Maybe Netflix is just having growing pains but I will wait till the toddler learns to walk and teaches us we don't have to stand over him while he falters. Their basics sound good, the idea is a great one and I am looking beyond that to the day when each TV channel has its own stream-load from my computer to my TV but meanwhile back at the farm the cow still needs a milkin. :)

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