Please ensure Javascript is enabled for purposes of website accessibility

Netflix: Next Stop $250?

By Rick Munarriz - Apr 16, 2013 at 5:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An analyst initiates coverage of the leading video service with a hefty price target.

Leave it to Netflix (NFLX -3.79%) 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 (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 (NYSE: TWC) was promoting Netflix in its "Enjoy Better" marketing campaign, and Cablevision (NYSE: CVC) 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$180.34 (-3.79%) $-7.10
Time Warner Inc. Stock Quote
Time Warner Inc.
TWX

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.