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Netflix: Next Stop $250?

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Leave it to Netflix (NASDAQ: NFLX  ) to buck the malaise.

One of the market's hottest stocks in recent months rose 2% yesterday as the general market suffered its biggest drop in five months.

The catalyst here is easy. BTIG Research initiated coverage with a buy rating and a healthy $250 price target. Remember when Goldman Sachs pushed its price target up to $184 last week? That's so last Thursday.

BTIG analyst Rich Greenfield is encouraged by member engagement at Netflix. The firm's assumptions are that there are now 29 million stateside streaming households, using the service for an average of more than 87 minutes a day. With that kind of usage, do you really think folks will be cancelling at the same rate that they used to in the past? I mean, it's just $7.99 a month.

The improving fundamentals -- and CEO Reed Hastings himself pointed out how Netflix is averaging more than 1.3 billion hours of content a month through the first three months of the year -- make it easier for Netflix to invest in the content that sets it apart from the fading competition.

Even Time Warner's (NYSE: TWX  ) HBO gets cut down to size in the analyst report, as Greenfield paints Netflix as a 24/7 babysitter with the kid-friendly content that HBO just doesn't have. When you tack on the acclaimed serial dramas and the recent push for original first-run content, is HBO really worth twice as much as Netflix?

Greenfield points out how many of the TV Everywhere proponents are calling for a truce with Netflix.

Time Warner Cable (UNKNOWN: TWC.DL  ) was promoting Netflix in its "Enjoy Better" marketing campaign, and Cablevision (UNKNOWN: CVC.DL  ) put out ads claiming that it delivered the best Netflix streaming experience.

If you can't beat 'em, profit by promoting 'em.

Greenfield's target of $250 is certainly not for the squeamish. It breaks out to a multiple of 22.5 times his projection for next year's EBITDA of $505 million, and that's risky. It's so far away -- and so much can go right or wrong with the Netflix model between now and then -- that the smarter bet would be that Netflix clocks in a lot higher or lower than that projection.

However, after everything that Netflix went through during the latter half of 2011 and the first few months of last year, there's no point in dismissing a compliment. Netflix has a new price target from a notable watcher, and it's a meaty goal.

Nothing for Netflix
The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why The Motley Fool has released a premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.

Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On April 16, 2013, at 7:01 PM, ImpatientPerson wrote:

    I like Netflix but it has to be the height of chutzpah to raise its prices when so much of its programming is utter trash. I could tell them how to crush their competition but I'll save that for a company loyal to its customers.

  • Report this Comment On April 17, 2013, at 1:32 AM, Gowithit wrote:

    Improving fundamentals, IE, a worse growth rate average Q over Q and Y over Y than Apple and a P/E about 20 times greater times greater and somehow going up while Apple tanks. Want more proof this market is rigged by the big players, like Icahn? The problem with pricing Netflix like this is it will never be worth that much, regardless of what the profiteers price it at. It'll never reach an earnings level commiserate with its price, until it tanks. Heck, its highest margin business is the part it's getting rid of. I won't harp on content, because all these content providers of streaming video are awful. You can literally get through the entire good content in a month or 2 and then move on to the next providers free trial to see what they have. I left Netflix for 6 months this past year, repurchased, and there was little 6 things new I wanted to see.

  • Report this Comment On April 22, 2014, at 3:51 PM, ttompson wrote:

    I use Netflix more than I would like to admit! I have found so many shows from there. I don't even use cable anymore!

    Tara |

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