Netflix Updates: Stock Gains Momentum Ahead of Earnings

by Trefis Team
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Trefis
NFLX
Netflix
Source: Google Finance

Source: Google Finance

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Netflix’s (NASDAQ:NFLX) stock continued its climb last week when it gained upon market entry in U.K. and comments from certain analysts and hedge fund managers. Last Monday Netflix launched its U.K. streaming service at a price of £5.99/month. The latest reviews suggest that while customers are appreciating the ease of use of Netflix’s service, the content remains a weak link. The picture quality is also variable depending upon the Internet connection speed. Nevertheless Netflix remains confident around its success in U.K. and Ireland, dismissing any concerns over competition from local streaming service Lovefilm. [1] In the U.S., the company competes with Amazon (NASDAQ:AMZN), Hulu and Dish Network’s (NASDAQ:DISH) Blockbuster, as well as DVD rental companies such as Redbox.

See our complete analysis for Netflix

In the U.S., Netflix’s competitor Hulu announced its plans to raise more cash this year to fund original programming. [2] The streaming service now boasts of about 1.5 million paying subscribers. Original programming is something which Netflix is also increasingly pushing for as well. We believe that although this will be a differentiating factor, there is a limit to which streaming service providers can do it. They definitely do not want to aggravate traditional pay-TV companies.

We believe in Netflix’s potential to grow and regain some of its lost market value. Hedge fund manager Whitney Tilson recently stated that the company’s streaming service is likely to grow quickly in the U.S., and even faster internationally. [3]

Nevertheless there was a negative development last week when Netflix was sued by its shareholders over hiding its rising content costs that resulted in inflated stock price.

Our price estimate for Netflix stands at $126, implying a premium of about 35% to the market price.

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Notes:
  1. Netflix: ‘Lovefilm is no competition’, The Telegraph, Jan 9 2012 []
  2. Hulu Plans to Raise Money to Fund Expansion, Bloomberg, Jan 16 2012 []
  3. Netflix Rises Most in Year to Bring 2012 Gain to Over 40%, Bloomberg, Jan 10 2012 []
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