Why Netflix Shares May Reach $160

Netflix (NFLX: Nasdaq)
By Guggenheim Securities ($114.32, Aug. 3, 2015)

We are initiating Netflix with a Buy rating and $160 price target.

Netflix (ticker: NFLX ) is based on a sound concept: Utilize improvements in technology to better entertain consumers in an efficient manner at an attractive price.

The company has been a domestic industry leader in developing on-demand, Internet TV and is essentially synonymous with the practice from the consumer perspective. Management is using financial resources to strengthen the Netflix value proposition by adding unique, original content and further penetrating global markets

The stock’s performance has been very strong over the past two years, yet at $48 billion in market capitalization, we still see a significant gap between equity value and ultimate intrinsic value of the service. We believe investors should continue to build positions in Netflix shares up to $160.

Our discounted-cash-flow analysis yields the $160 share value using a 8.9% weighted average cost of capital and 4.0% long-term growth. The implied market capitalization at our target is $70 billion, which we feel may ultimately prove to be modest for the Internet TV industry leader.

Netflix is early in an investment phase; thus, it appears expensive on traditional metrics. However, we believe in the core business and see significant long-term growth potential.

For consumers, Netflix is the antidote to limited linear options, commercial interruptions. For content creators, Netflix provides financing, global distribution and branding. For investors, Netflix has a growing addressable market and a commitment to clearly defined strategy.

Internet TV is also compelling outside the U.S., where the addressable market is larger. We expect significant investment through 2016 as Netflix completes its global launch. Global adoption should be supported by broadband improvements and mobile.

Search-engine results for both Netflix and Netflix original programming continue to grow. The company’s original-programming investment has been met with critical acclaim as measured by Emmy nominations: Netflix ranked #7 in total Emmy nods in 2015, on pace with more-established networks.

Netflix Raises Price for New Users by $1 a Month

Most popular streaming plan will now cost $9.99 a month

Oct. 8, 2015 2:21 p.m. ET

Netflix Inc. raised the price of its most popular streaming plan in the U.S. by $1 for new customers as it ramps up investment in original shows and movies.

Netflix said its “standard” plan that allows for two simultaneous streams will now cost $9.99 a month, up from $8.99 previously. The increase won’t impact its other plans, which include a “basic” one at $7.99 a month that allows for one stream and a “premium” plan at $11.99 a month that permits four streams at once.

“To continue adding more TV shows and movies including many Netflix original titles, we are modestly raising the price for some new members in the U.S., Canada and Latin America,” a Netflix spokesman said in an emailed statement. “As a thank you to existing Netflix members -- who aren’t already benefiting from grandfathering -- we will maintain their current price for a year.”

The streaming service rolled out a similar increase across its European territories in August, increasing the cost of its standard plan by about a euro.

“We’re going to continue to have incentives for people to move up in the plans as suits their usage pattern, but we want to take it very slow,” said Netflix Chief Executive Reed Hastings during Netflix’s second-quarter earnings call in July. “Over the next decade, I think we will be able to have more and more content and add more value, and then be able to price that appropriately.”

I think we will be able to have more and more content and add more value, and then be able to price that appropriately

Video-streaming service provider Netflix Inc reported third-quarter U.S. subscriber additions below its own forecast, blaming an ongoing transition to chip-based cards for the miss.

Shares of Netflix, known for its original shows such as "House of Cards" and "Orange is the New Black", plunged about 15 percent after the bell, before clawing back to trade down 2.4 percent.

U.S. credit and debit card companies have been shifting to chip-enabled cards ahead of the Oct. 1 deadline mandated for the switch.

For Netflix, the switch meant that many of the older cards on its file no longer worked as the companies gave new cards to their customers, leading to "involuntary churn," as Chief Executive Reed Hastings put it in a letter to shareholders.

"It's just the dumbest thing I've heard," Wedbush Securities analyst Michael Pachter said.

FBR Capital Markets analyst Barton Crockett said the issue around the chip cards is particularly confusing, given that these cards have been around for a bit.

"It begs a million questions," he said.

Netflix said on Wednesday it added 0.88 million U.S. subscribers in the third quarter ended Sept. 30, compared with its forecast of 1.15 million.

"The slowdown in U.S. subscriber growth was particularly disappointing because one would expect that since Netflix just raised rates last week, this number would have been strong," said Crockett.

Netflix increased the subscription rate for some new members earlier this month by $1.00 a month to $9.99 in the United States, Canada and Latin America.

Internationally, Netflix added 2.74 million subscribers, compared with its projection of 2.40 million.

Netflix, which is also battling intense competition from other streaming services such as Amazon.com Inc's Prime Video service and Hulu, has been aggressively building its overseas presence.

The company said it was in the "early stages" of its China entry and said it was "still learning a lot".

Netflix said in July its plans to enter China in 2016 would be delayed.

The company is being more adventurous in terms of moving into news programming and was highly likely that it would be competing with Vice Media in the next two years, company executives said on a post-earnings conference call live-streamed on YouTube.

Vice Media is known for its current affairs coverage for young people.

Netflix forecast adding about 1.65 million customers in the United States in the current quarter. It also said it expected to add about 3.50 million subscribers worldwide.

Netflix expands global reach, Wall Street cheers

Shares in Netflix jumped as much as 8% on Wednesday after the streaming serving giant took a big step to expand its global footprint.

Kicking off the day at the Consumer Electronics Show in Las Vegas with his keynote address, Netflix CEO Reed Hastings said the Los Gatos-based company had activated service in 130 more countries, including Russia, India, South Korea and Saudi Arabia.

Since launching in 2007, Netflix has expanded into Canada, Latin America, Europe, Australia, New Zealand and Japan to include 60 countries. Now Netflix has services in more than 190 countries.

“Today you are witnessing the birth of a new global Internet TV network,” Hastings told the crowd. “With this launch, consumers around the world -- from Singapore to St. Petersburg, from San Francisco to Sao Paulo -- will be able to enjoy TV shows and movies simultaneously -- no more waiting. With the help of the Internet, we are putting power in consumers’ hands to watch whenever, wherever and on whatever device.”

As part of the expansion, Netflix added Arabic, Korean and Chinese to the 17 other languages it offers.

Last year, the company rolled out its services in Japan, Australia and Spain, among others. And it plans this year to launch in South Korea, Singapore, Hong Kong and Taiwan.

One country that notably remains out of its hands is China, where Netflix faces competition from local streaming services.

The company said in a statement that it “continues to explore options” for making its service available in one of Hollywood’s most coveted markets. The company also noted that it won’t be available in Crimea, North Korea and Syria “due to U.S. government restrictions on American companies.”

Netflix closed out its third quarter last year with 69.2 million streaming subscribers in more than 40 countries -- 26 million of those are international subscribers.