Shares of Netflix Inc. rose Tuesday after a Needham & Co. analyst upgraded the shares to "Hold" from "Under Perform," saying that additional subscriber data from Netflix leads him to raise his fair value estimate for the stock.
The online movie rental service's shares rose $1.03, or 4 percent, to $27.10 Tuesday. In the past year, Netflix's shares have traded between $15.62 and $40.90, falling almost 25 percent in the second quarter of the year.
In a note to investors, Needham analyst Charlie Wolf said that he raised his fair value for the stock to $25 from $22 and upgraded the stock because Netflix shares are currently trading close to his new fair value.
The fair value increase stemmed from changes he made to his valuation model for the company. Initially, part of his model assumed a Netflix subscriber's profitability to the company was independent of how long they kept their subscriptions, he said.
"This materially underestimated the value of the company, because the profitability of a subscriber increases with the length of time he maintains his subscription," he said.
After receiving more data from the company related to the profitability and churn rate of subscribers as related to subscription lengths, his view on the company's value rose, he said.
He also raised his assumption for the company's monthly churn rate _ or the rate at which customers leave Netflix _ to 3 percent and 3.25 percent from a prior 2.5 percent estimate, Wolf said.
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