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Kosty 02-27-2012 06:32 PM

Analyst Lowers Boom on Netflix - Subscriber Growth Challenges Cited

Analyst Lowers Boom on Netflix

27 Feb, 2012


A Wall Street analyst Feb. 27 dropped his rating on Netflix to “underperfrom” from “market perform,” citing the subscription video-on-demand leader’s challenges driving subscriber growth going forward.

Aaron Kessler with Raymond James in San Francisco said Netflix’s ability to drive incremental sub growth will be undermined in part by higher content acquisition costs.

“While Netflix experienced strong growth going from 9 million paid subs at the end of 2008 to 21 million subs at the end of 1Q11, growth has leveled off since, in part due to the 3Q11 pricing change, though Netflix is potentially being impacted by the law of large numbers and rising competition,” Kessler wrote in a note.

Kessler said Netflix’s stock is worth between $70 and $104 per share — based on a fiscal year earnings-per-share estimate of $3.25. That still represents a 21-to-32 multiple on projected share earnings.

“We believe the main competitors today for Netflix streaming in the U.S. include Amazon, Hulu, HBO and Showtime, though we believe other players including Google, Apple, and the recently announced Redbox/Verizon joint venture and Comcast ‘Xfinity Streampix,’ could become more competitive as well,” Kesller wrote.

Separately, Netflix reportedly is nearing a Spanish-language content license deal with Univision for streaming in the United States.

There are about 13.9 million Hispanic TV households in the United States, according to Nielsen, with Los Angeles the largest individual Hispanic TV market in the country.

The pact, which Bloomberg reported Feb. 24, would expand upon a current streaming deal between Univision and Netflix in Latin America, the Caribbean and Mexico — regions Netflix bowed streaming service to last year.

Univision is owned by Saban Capital Group, in addition to several private equity groups. Univision and Hulu.com signed a content license agreement last October.

Netflix stock was down $2.89 per share to $108.87 in midday trading.

Kosty 02-27-2012 06:36 PM

That's a different analyst than the usual ones that are bearish on Netflix.

Not sure if I agree with the assessment there on short term subscriber growth as I do not see Amazon and other competitors being serious distractions to Netflix at the moment and I see Netflix still have plenty or room to grow in the short term.

Seems to be a bit too pessimistic to me, at least in the short term.

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