Netflix shares rise on long-term optimism
NEW YORK (AP) — Shares of Netflix Inc. rose Friday after a Janney Capital Markets analyst upgraded the stock and said it could be poised for long-term growth.
THE SPARK: Tony Wible raised his rating for Netflix shares to "Buy" from "Neutral," saying that the reduced number of shares on the market will magnify the effects of the company's improving financial picture.
THE BIG PICTURE: Los Gatos, Calif.-based Netflix has been steadily expanding the breadth of its Internet video service to ward off growing competition from rival video-streaming services offered by Amazon.com Inc. and Coinstar Inc.'s Redbox.
Last month, the company announced a deal for the rights to show Disney movies shortly after they leave theaters. And in recent weeks it has announced deals to show past episodes of certain Warner Bros. Television Group and Cartoon Network shows.
By providing more compelling entertainment options, Netflix also hopes to attract more subscribers to its $8-per-month service so it will have more money to license even more content from Hollywood studios and pay for the production of original series, too.
THE ANALYSIS: Wible said the recent deals are changing how studios and investors approach Netflix. He said the shares could get a boost from subscriber growth, content cost controls and a potential price increase. Meanwhile, competition hasn't been as heavy as previously expected.
"While we still believe Netflix earnings growth will be subdued in the foreseeable future, in part due to international expansion costs, we believe investors are looking past this and valuing the company more on its longer-term growth potential, implying that a higher multiple can be sustained," Wible wrote in a note to investors.
He added that while there may be some volatility around the release of the company's quarterly results, any drop in the stock price should be treated as a chance to pick up shares at a discount.
THE SHARES: Up $2.89, or 3 percent, to $100.59 in morning trading, after peaking at $101.94 earlier in the day. Over the past 52 weeks, the company's shares have traded between $52.81 and $133.43.
Netflix shares tumble for much of the first nine months of 2012, but rallied in the fourth quarter to lose only about 1 percent of their value for the year.