Valuation, Outlook Make Netflix (NFLX) One Hot Stock - Barron's
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Despite the massive decline in one notable stock over the last several weeks (and months), most of the downside might already be priced in, with a nice pop in share price expected.
According to Barron's over the weekend, Netflix (Nasdaq: NFLX), which has been hammered from a high of over $300 in July to a price in the mid-$60s now, may be an investor's dream. Valuation fell from 65 times next years earnings in July, to a much more realistic 16 times.
Further, T2 Partners' Whitney Tilson, a one-time famed short on the stock, has become even more bullish in recent weeks, having grabbed up plenty of shares at the end of October and containing to do so now. Barron's pointed out that Tilson was spot on with BP plc (NYSE: BP) last year, when T2 bought shares in June of 2010, months after the Macando well incident halved BP's share price from $60 to $27, and allowed T2 to ride a quick 50 percent gain over the subsequent six-week period.
As many know, Netflix had a few gaffes over the summer, doubling the price of its services, aiming to split off its DVD business, than reneging on that, and all of those moves coming with lack of management transparency and half-hearted attempts by CEO Reed Hastings to quell customer concerns. Early last week, Netflix also announced a $400 million capital raise through the sale of zero coupon convertible notes and stock.
Netflix also has said it plans to incur a loss in 2012, leading analysts to cut earnings estimates from $4.68 per share in 2011 and $6.95 in 2012, to a more realistic $4.08 and 75 cents, respectively.
But Tilson is looking a little bit further out. Though he expects a loss from Netflix over the next few quarters, he believes that the customer base will turn out to be more resilient than many believe. Netflix has a strong brand, and although overall subs have decreased, it's streaming service continues to gain more and more members, with gross adds up 30 to 40 percent the last several quarters.
Another angle is that Netflix might be a buyout target. From a market cap in the mid-to high-ten-billion range over the summer, Netflix has become a more digestible $3 to $4 billion in market cap. With rival Amazon (Nasdaq: AMZN) making bigger and bigger strides into the streaming space, it might look to expand through an acquisition rather than needing to hash-out its own content deals. Plus, the addition of 14 million-plus subs isn't too bad of an idea either.
Tilson did caution, Barron's notes, that any hint of sub losses might send shares even lower, there are plenty of surprises in store should Netflix deliver on promises, and Hastings learns from mistakes.
Shares of Netflix are up over 5 percent early Monday morning.
According to Barron's over the weekend, Netflix (Nasdaq: NFLX), which has been hammered from a high of over $300 in July to a price in the mid-$60s now, may be an investor's dream. Valuation fell from 65 times next years earnings in July, to a much more realistic 16 times.
Further, T2 Partners' Whitney Tilson, a one-time famed short on the stock, has become even more bullish in recent weeks, having grabbed up plenty of shares at the end of October and containing to do so now. Barron's pointed out that Tilson was spot on with BP plc (NYSE: BP) last year, when T2 bought shares in June of 2010, months after the Macando well incident halved BP's share price from $60 to $27, and allowed T2 to ride a quick 50 percent gain over the subsequent six-week period.
As many know, Netflix had a few gaffes over the summer, doubling the price of its services, aiming to split off its DVD business, than reneging on that, and all of those moves coming with lack of management transparency and half-hearted attempts by CEO Reed Hastings to quell customer concerns. Early last week, Netflix also announced a $400 million capital raise through the sale of zero coupon convertible notes and stock.
Netflix also has said it plans to incur a loss in 2012, leading analysts to cut earnings estimates from $4.68 per share in 2011 and $6.95 in 2012, to a more realistic $4.08 and 75 cents, respectively.
But Tilson is looking a little bit further out. Though he expects a loss from Netflix over the next few quarters, he believes that the customer base will turn out to be more resilient than many believe. Netflix has a strong brand, and although overall subs have decreased, it's streaming service continues to gain more and more members, with gross adds up 30 to 40 percent the last several quarters.
Another angle is that Netflix might be a buyout target. From a market cap in the mid-to high-ten-billion range over the summer, Netflix has become a more digestible $3 to $4 billion in market cap. With rival Amazon (Nasdaq: AMZN) making bigger and bigger strides into the streaming space, it might look to expand through an acquisition rather than needing to hash-out its own content deals. Plus, the addition of 14 million-plus subs isn't too bad of an idea either.
Tilson did caution, Barron's notes, that any hint of sub losses might send shares even lower, there are plenty of surprises in store should Netflix deliver on promises, and Hastings learns from mistakes.
Shares of Netflix are up over 5 percent early Monday morning.
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