) surged 7.38% ($32.50) to reach $473.10, following an upgrade from
"Neutral" to "Buy" by
Goldman Sachs Group
) analyst Heath Terry. Goldman also beefed up its 12-month price
target to $590.0 million from $380.0 million.
The company hit a 52-week high of $473.68 on July 1, 2014. The
year-to-date return was 30.4% while the S& P 500 jumped 7.7%
during the same period.
Per Goldman, Netflix has the potential to more than double its
global subscriber base over the next three years as it continues
with its international expansion initiatives. Netflix's addressable
subscriber base is expected to touch around 207 million by 2017.
Terry further believes that the content for kids holds immense
growth. Netflix itself recognizes the fact that kids make up a
significant chunk of TV show and film viewers. To capitalize on
this, the company had launched its exclusive Internet video
streaming service, Just For Kids way back in 2011.
Further, to attract kids the company is also working with
DreamWorks to bring original cartoon series to the service and has
a similar deal in place with Mattel.
Additionally, Terry also raised 2014-2016 revenue and EPS guidance
by 6.0% and 7.0%, respectively, to reflect significant growth in
international subscribers as well as increase in average revenue
per user in the U.S.
We believe that the upgrade is a positive for Netflix as it will
strengthen investor confidence, especially at a time when the
company is pursuing international expansion.
Rising content cost and increase in expenditure on account of
international expansion remain near-term headwinds. Moreover,
intensifying competition from
), Hulu and
) HBO is also a major concern for the company.
Nevertheless, Netflix's recent price increases (for both domestic
and international new users) will help the company to offset these
higher expenses. Moreover, the company's ever-expanding content
portfolio and focus on improving customer engagement will continue
to boost subscriber base.
Currently, Netflix has a Zacks Rank #3 (Hold).
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