Piper Jaffray Removes Netflix From Alpha List; Maintains Buy Following Q1 Earnings (NFLX)

April 22, 2008 9:13 AM EDT

Piper Jaffray removes Netflix (Nasdaq: NFLX) from its Alpha List, saying "our near-term catalyst, the Q1 earnings report, is now in the rearview mirror." The firm maintains its Buy rating and $45 price target on shares of Netflix.

The firm notes that Netflix "met or exceeded metrics across the board, with the exception of gross margin", which is "typically down seasonally in Q1..." Piper believes Netflix's gross margins will continue to decline year-over-year related to increasing content costs for Internet delivery. Similarly, Piper expects Netflix to continue to invest in its download initiative.

For Netflix shareholders, Piper called the "bottom line" the Company's ability to continually gain market share. The firm also believes Netflix will benefit from the adoption of Blu-ray. Piper said, "even with the lower gross margin, we expect 30%+ EPS growth in '08..."

The Piper report mentions Netflix's raised FY08 subscriber guidance to a range of 9.1-9.7 million subscribers; the firm said it will use subscribers of 9.3 million for its CY08 model.

Finally, Piper points out that Netflix has yet to dip into its $150 million buyback which was announced on March 6. The firm estimates that if Netflix were to buy $150 million in stock at current levels, it would add about $0.05 to its CY08 EPS estimate.

Shares of Netflix are down about 14%, or $5.42, in pre-market trading. The stock most recently traded at $33.90, which would mean Piper sees about 32% upside from current levels.

Netflix, Inc. provides online movie rental subscription services in the United States. [BCS]

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