How Will This Downgrade Affect Netflix?

From the outset, Hewlett-Packard (NYSE:HPQ) appears to have very little in common with Netflix (NASDAQ:NFLX); one company is the world’s leading PC manufacturer and the other provides an online streaming video service. But there is one point of commonality: accounting. The investment firm Albert Fried has said that potential Netflix buyers could find the HP-Autonomy accounting debacle worrisome as the company’s method of accounting is “aggressive.”

What Problems Does Netflix Have With its Accounting?

On Monday, Albert Fried downgraded Netflix to an Underperform rating, saying “We think NFLX’s aggressive accounting practices in the context of the Autonomy fiasco are enough to dissuade potential NFLX suitors.” The firm added, “We think corporate boards will be more diligent in large strategic transactions and we think due diligence is a potential NFLX deal head wind.”

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HP’s most recent quarterly report showed that its acquisition of Autonomy forced the company to take a $5 billion charge related to accounting missteps. With Alfred Fried linking Netflix to this case, potential investors are reminded of Netflix’s own accounting problems…