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Goldman Sees More Growth for Netflix

Thursday, 11 Apr 2013 06:03 PM

 

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The growing number of devices on which Netflix Inc. subscribers can watch movies and TV shows is making the service more valuable, a Goldman Sachs analyst said. He said the company could increase its profit by raising prices.

Analysts have traditionally connected the limits of Netflix's U.S. subscriber base to the number of households with broadband Internet connections, said analyst Heath Terry. But given that subscribers can connect to Netflix through devices such as tablet computers, smartphones, game consoles like the Xbox and Internet-enabled televisions, as well as PCs, the number of potential customers — and profits — is larger than thought, Terry said.

"Subscribers' families and increasingly their friends, through shared accounts, are consuming more Netflix content, which is increasing the subscription's value in our view," the analyst said.

He said Netflix would able to "capture this value" by charging per individual rather than per household, charging based on the number of streams to individual devices, raising prices or existing services or adopting some combination.

A Netflix representative did not immediately reply to a request for comment.

Netflix shares rose $6.94, or 4.2 percent, to end Thursday at $173.01, and the stock was quoted up an additional 2.4 percent in aftermarket trading.

Netflix has promised not to further raise prices after outraging subscribers in 2011 by increasing prices by as much as 60 percent for those who wanted to stream video and still rent DVDs through the mail. The company's stock peaked near $305 in July 2011, around the same time it announced the price hike. Netflix has since been trying to make amends for the customer backlash the price increase triggered.

Terry predicted that Netflix could grow U.S. subscribers to 52.7 million by 2017. Netflix has about 27 million U.S. subscribers to the streaming service. The Los Gatos, Calif., company's CEO, Reed Hastings, has said he expects to reach 60 million to 90 million subscribers in the U.S.

Netflix also has about 8 million customers signed up for DVD-by-mail rental plans. It is phasing out the disc service.

Terry, who rates the stock "Neutral," raised his earnings estimates on the company. He now expects per-share earnings of $1.12 this year, $3.72 in 2014 and $6.07 in 2015.

Analysts polled by FactSet expect per-share profit of $1.30 this year, $3.19 next year and $5.39 in 2015.

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