The Wall Street Journal reported on Netflix’s (NASDAQ: NFLX) newest growth initiative:
The online movie giant said earlier today that it will expand its service to 43 countries in Latin America and the Caribbean this year, meaning more customers to download hits like Y Tu Mama Tambien. …
Netflix members in the region will be able to access Netflix in Spanish, Portuguese, or English. We’d note that, in late September, Netflix introduced a streaming-only service in Canada for C$7.99, and followed up with a U.S streaming-only service in November.
Here’s what analysts think of the initiative. According to Citi,
All in, we believe this 43-country launch is bigger/broader than the Market was expecting.
Per Citi’s LatAm Telco Analyst James Rivett, there are approximately 45MM Broadband Subs in Latin America and the Caribbean, with 36MM in Brazil, Mexico, Chile, and Argentina. As a gut-check, NFLX achieved 8% Canadian Broadband household penetration within 7 months of its launch. Our 2012 estimates now assume that NFLX can achieve 8% LatAm/Caribbean penetration within 12-18 months – and possibly less if NFLX also launches into Europe or other regions.
This seems reasonable. All that said, there is absolutely no guarantee that NFLX will succeed in any of these new International markets, although we believe that Internet Video Streaming will become a major activity in each of these markets.
Reiterating Our Buy & $300 PT — Despite its 53% YTD rise (vs. a 6-7% market performance), we continue to view NFLX as one of the best Large Cap Longs in the Internet sector.
On the other hand, Dawson James is bearish:
Netflix’s growth going forward faces substantial pitfalls including declining average monthly revenue per paid subscriber, increasing competition, increasing costs to obtain content, and many internet service providers placing limit restrictions on consumer bandwidth usage.
Although Netflix has a strong history of consistent growth in both revenue and net income, the stock price has appreciated over 500% in the past two years, and has become overvalued by as much as 50-60% compared to its peers. Therefore, we are initiating coverage on NFLX with a SELL rating and a 12-18 month price target of $181.00 per share, or FY2012E earnings per share of $5.62 multiplied by a price/earnings ratio of 35 (representing a PEG ratio of 1) and discounted by 8.5% per year (the cost of the Company’s most recent financing) for one year, from 2011 to 2012.
Covestor models that held NFLX as of 7/5 included:
- Disruptive Game-Changers by Tom Schlegel
- Energy by Alegandro Paschalides
- Deep Fundamental Analysis by Tab Buford
- Fundamental Growth by Sparrow Capital
Sources:
“Netflix Sets Sights on Latin America, Stock Zooms” Wall Street Journal, 7/5. https://blogs.wsj.com/marketbeat/2011/07/05/netflix-sets-sights-on-latin-america-stock-zooms/
