This On-Target Analyst is Warming Up to the Netflix (NFLX) Story
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Price: $226.18 -1.04%
Rating Summary:
15 Buy, 18 Hold, 10 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 21 | Down: 24 | New: 29
Rating Summary:
15 Buy, 18 Hold, 10 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 21 | Down: 24 | New: 29
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While shares of Netflix (Nasdaq: NFLX) have a wet blanket on them Tuesday following reports of new Comcast (Nasdaq: CMCSA) competition, one astute analyst thinks the story is improving.
Analysts at Jefferies, which had a well-timed downgrade of Netflix in December of 2010, said they walked away from an investor meeting with management last week "incrementally more positive."
The firm said the story is improving on the margin, given: a) re-acceleration in streaming sub growth, b) mgt's focus on content differentiation (a-la HBO) to expand the addressable market, drive LT growth and keep competition at bay.
Jefferies' Youssef Squali said Netflix's move toward exclusive/proprietary content will drive differentiation, subscriber growth and retention long-term. Netflix is looking to emulate HBO's playbook, which has 30 million domestic subscribers. However, Netflix believes that given the lower price point, the total-addressable market is likely 60-80M subscribers, with 40-50 million subscribers as an achievable target long-term. Squali is more conservative, seeing 29 million by 2016.
The firm also noted US contribution margins is expected to continue to improve as the company looks to grow revenue at a faster clip than content costs.
The streaming business continues to see healthy growth, with Q1 net sub growth for US streaming currently tracking to 2010 levels of 1.7 million net adds. If this is sustained throughout the year, net adds would approach 7.7 million, the firm comments. Although they caution that during the 2nd-half of 2010 subs greatly benefited from the inclusion of the Netflix app in tens of millions of CEs, shipped that holiday season, which is likely to prove difficult to replicate.
Jeffereis notes that while UK sub growth is tracking in-line or slightly better than Canada at launch, profit will likely to be negative over the next 1-2 years, given the higher content costs versus Canada.
On the DVD business, Jefferies calls it a "melting ice cube" and management is unsure about the rate of decline, and therefore the potential cash flow generation from this segment over time.
The firm also notes Netflix will likely introduce more concurrent streaming later this year for heavy users, which will allow heavy users to watch up to 4 concurrent streams for a slightly higher price.
While the firm is clearly more positive on Netflix, they are maintaining their Hold rating and $115 price target reflecting risks from higher content costs, faster DVD decline and slower international traction.
For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.
Shares of Netflix closed at $121.85 yesterday, with a 52 week range of $62.37-$304.79.
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Analysts at Jefferies, which had a well-timed downgrade of Netflix in December of 2010, said they walked away from an investor meeting with management last week "incrementally more positive."
The firm said the story is improving on the margin, given: a) re-acceleration in streaming sub growth, b) mgt's focus on content differentiation (a-la HBO) to expand the addressable market, drive LT growth and keep competition at bay.
Jefferies' Youssef Squali said Netflix's move toward exclusive/proprietary content will drive differentiation, subscriber growth and retention long-term. Netflix is looking to emulate HBO's playbook, which has 30 million domestic subscribers. However, Netflix believes that given the lower price point, the total-addressable market is likely 60-80M subscribers, with 40-50 million subscribers as an achievable target long-term. Squali is more conservative, seeing 29 million by 2016.
The firm also noted US contribution margins is expected to continue to improve as the company looks to grow revenue at a faster clip than content costs.
The streaming business continues to see healthy growth, with Q1 net sub growth for US streaming currently tracking to 2010 levels of 1.7 million net adds. If this is sustained throughout the year, net adds would approach 7.7 million, the firm comments. Although they caution that during the 2nd-half of 2010 subs greatly benefited from the inclusion of the Netflix app in tens of millions of CEs, shipped that holiday season, which is likely to prove difficult to replicate.
Jeffereis notes that while UK sub growth is tracking in-line or slightly better than Canada at launch, profit will likely to be negative over the next 1-2 years, given the higher content costs versus Canada.
On the DVD business, Jefferies calls it a "melting ice cube" and management is unsure about the rate of decline, and therefore the potential cash flow generation from this segment over time.
The firm also notes Netflix will likely introduce more concurrent streaming later this year for heavy users, which will allow heavy users to watch up to 4 concurrent streams for a slightly higher price.
While the firm is clearly more positive on Netflix, they are maintaining their Hold rating and $115 price target reflecting risks from higher content costs, faster DVD decline and slower international traction.
For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.
Shares of Netflix closed at $121.85 yesterday, with a 52 week range of $62.37-$304.79.
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