Recently Capital Research Global, an investment management firm, disclosed a 10.5% stake in Netflix (NASDAQ:NFLX) in a regulatory filing with the SEC. [1] The company is part of The Capital Group Companies which is one of the biggest investment organizations in the world. This definitely sends a positive signal to investors even though market reaction to the news was negligible. The fact that a large investment management firm such as Capital Group increased its stake to 10.5% in NFLX indicates positive fundamentals even though the stock has been hammered in the recent past. See our complete analysis for Netflix
This news echoes with our bullish view on the company. Our price estimate for Netflix stands at $96, implying a premium of more than 50% to the market price. We still maintain our bullish stance on Netflix due to its lead over competitors in terms of content and international expansion. Profits will remain low due to high content costs but, over time, this initial investment will pay off as the base expands internationally. While positives exist, there are certain risks as well. The competition is increasing and Comcast’s (NASDAQ:CMCSA) Xfinity Streampix is priced below Netflix’s service. This will likely make price increases difficult in the future and put pressure on the margins as content costs increase.
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Notes:- Capital Research Global Discloses 10.5% Stake in Netflix, CNET News, Aug 2 2012 [↩]
