Analysts excited about Netflix’s glowing forecast
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Jan 21, 2015  |  Vote 0    0

Analysts excited about Netflix’s glowing forecast

The company acknowledged competition is increasing domestically and internationally with new entrants like Time Warner, Amazon and Yahoo joining domestic video streaming market

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Netflix, Inc.’s better than expected earnings report Tuesday spurred a flurry of analyst upgrades even as the video giant warned of rising costs to boost original content and intensifying competition amid a stepped up global expansion.

Los Gatos, Calif.-based Netflix said the rapid rise to profitability of its demand streaming services in markets including Canada means it can grow into 200 countries by 2017, while sustaining material global earnings onwards.

“This is aggressive but possible, with the rapid proliferation of connected devices,” said BMO Capital Markets’ Edward Williams, among at least 13 analysts to raise price targets on the stock Wednesday.

Netflix is “skillfully navigating the transition between slowing subscriber growth in the U.S. segment and international expansion,” added Stifel Nicolaus’ Scott Devitt, who raised his target to $500 (U.S.) from $380.

Netflix, which offers streaming services in about 50 countries, topped its own guidance in the fourth quarter 2014 earnings report with 4.3 million subscriber additions, helped by higher-than-expected interest overseas.

That news sent shares ahead by 13 per cent Tuesday and by as much as 19 per cent by midday Wednesday, closing on the Nasdaq at $409.28 for a gain of $60.48.

IBM Corp., which also reported earnings Tuesday, by contrast saw its share value drop by $4.86 to $152.09 after the New York-based tech services company posted a new 2015 profit target and quarterly revenue that both missed analysts’ estimates amid a shift to cloud computing.

Netflix, meanwhile, said it would increase the percentage of content spending devoted to original series after total streaming obligations jumped to $9.5 billion in the fourth quarter from $7.3 billion in the year ago period. Netflix is expected to raise $1 billion in debt to this year.

At the same time, the company acknowledged competition is increasing domestically and internationally with new entrants like Amazon and Yahoo joining veterans such as Time Warner in the domestic video streaming market. As well, HBO has announced a stand-alone subscription service that could undercut Netflix in price while Dish and Sony have rolled out their own Internet TV offerings.

And Netflix faces price competition in the international markets both from stand-alone streaming series such as Claro video in Mexico and from incumbent broadcasters offering over the top programming. including Canal Play in France.

Netflix in its earnings report also touched on competition from free alternative services, citing the sharp rise of Popcorn Time in the Netherlands.

Observers also noted that some newer markets may not receive the tailored Netflix packages that have spurred early profits in North America and could see starting prices for the service higher than those in the U.S.

Chief executive Reed Hastings acknowledged on the earnings call that his strategy to hasten expansion and invest more in content could have a negative impact on margins but said revenue growth, the company’s competitive position and its long-term profitability will ultimately benefit.

Toronto Star

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