According to recent news from Bloomberg,
Netflix Inc. (
NFLX
)
is on the brink of producing another original series called
Orange Is the New Black
. Based on a communications executive's autobiography, it has been
rumored that Netflix will produce 13 episodes of this new comedy
series.
Netflix grabbed the rights of the original series from Jenji
Leslie Kohan, a television writer, producer and director, well
known for her comedy drama
Weeds
. If the deal materializes,
Orange Is the New Black
will be the second original series produced by Netflix, following
the Kevin Spacey-starred original political drama
House of Cards
in 2011. Netflix is expected to stream five original series within
the first half of 2013.
We believe that Netflix will continue to focus on producing
original content in order to differentiate its service from its
closest rivals HBO, a division of
Time Warner Inc. (
TWX
)
and
Amazon Inc. (
AMZN
)
.
Netflix is also picking up exclusive distribution rights to
third party productions, such as E Street Band guitarist Steven Van
Zandt starred -
Lilyhammer
(premiered on February 6). The company is also reviving Fox's
canceled series
Arrested Development
, which is expected to be streamed in the first half of 2013.
According to Bloomberg, Netflix is also in talks to secure the
rights to the horror drama
Hemlock Grove
, a series produced by Gaumont International Television.
We believe that the new content additions will not only enhance
Netflix's competitive edge but will also revive its dwindling
subscriber growth going forward. Apart from refreshed content,
Netflix continues to sign a number of licensing deals with big
Hollywood production houses to provide varied content, which is
expected to further attract new customers going forward.
Netflix raised $400 million in cash through stock offerings at
$70 per share and convertible bonds in late 2011, in order to
develop its streaming library and to fund its international
expansion. We believe that Netflix's improving content portfolio
and international expansion are noteworthy. Despite the higher
license renewing costs, we think Netflix will probably see sales
strengthening, as subscribers take note of the improving portfolio.
This would ultimately enable the company to strengthen its position
over the long term.
However, we believe that higher capital expenditure due to
international expansion will hurt earnings growth in the near term.
Moreover, increasing competition from Amazon, HBO and entry of
Verizon Communications (
VZ
)
into the streaming market will limit the company's upside going
forward.
Thus, we have a Neutral recommendation on Netflix over the long
term. Currently, Netflix has a Zacks #3 Rank, which implies a Hold
rating over the short term.
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NFLX
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