Pacific Growth Raises Netflix Estimates - Belatedly? (NFLX)

Pacific Growth Equities analyst Derek Brown raised his 2006 estimates for Netflix on September 9th, following the company's analyst day. Extract from his note to clients and a quick comment:

NETFLIX: Raising 2006 Ests, Reiterating Over Weight Rating On Bullish Analyst Day

In recent months, data from the marketplace has made it clear to us that: (i) Netflix’s franchise is very much intact; (ii) the online DVD rental market may be larger than previously expected; (iii) the worst of the competitive “storm

Comments

[Nick Perry:]

Re: "We do not think these conclusions are shared widely by the Street" - according to <i>Zacks</i&g... only 5 of 16 analysts (31 percent) rank the stock with a "buy" rating. Also, short interest is relatively high as it stands at roughly 40 percent of the stock's float. Seems like all-around skepticism from the Street...

2005 Sep 12 11:57 AM

[David Jackson:]

Totally agree with you that the sell-side has been late on the stock and is still predominantly negative. But the key question is whether that is a valid sentiment indicator. The chart and recent performance suggest that the buy side views the stock very differently, and that the sell-side is just lagging in raising estimates and ratings.

2005 Sep 12 05:35 PM

[kdewalt:]

I highly recommend that any individual investors or analysts listen to the recent analyst day presentation. The company has several strong emerging trends at its sails: popularity of DVDs, weakening competition, consumer comfort with e-commerce, and growth in home theater. In addition, the managment does a fine job of outlining the competitve moat around its business. Anyone who has ever managed a distributed operation or enterprise custom software development process will be impressed.

With the exception of the pricing blunders last year, the management has been successful at making bold predictions and meeting expectations. If their characterization of cost leadership and the addressable market size are correct, this company could indeed become one of the top consumer services in the world on par with Soutwest.

Of course these presentations have be taken with a grain of salt and I'm long on the stock, but it is worth noting that there were few substantive challenges from the audience during the day.

2005 Sep 13 07:49 AM

[Nick Perry:]

Can you expand more on what you mean by "whether that is a valid sentiment indicator"? In my mind, it is valid because I am merely trying to determine whether <i>potential<... sideline money still exists (figuratively speaking) to <i>potentially&l... fuel the rally. Ideally, I <b>would</b&g... want to see the sell-side lagging the strong performance as it suggests they <i>may</i> try to catch up with upgrades, which will hit the media and has the <i>potential<... to force some of the shorts out of their positions. I am stressing the "potentials" here because nothing is for sure and view trading based on "prospects". In other words, I am looking at the sentiment to help determine whether it is too late to come to the party. Granted this isn't fool-proof and the company still has to perform, but the fact that some on the Street are still sitting on fence seems to be encouraging. Clearly you don't see it the same way so I would be very interested to learn more about your views...

2005 Sep 13 09:22 AM

[David Jackson:]

The key question is whether the sell-side ratings reflect money still sitting on the sidelines or whether so much buy-side cash has already moved into the stock that the sell-side analysts are merely a lagging indicator of sentiment changes that have already happened.

What interests me here is that the sell-side is generally bad at guaging investor sentiment. Most sell-side initiation of coverage reports don't even attempt to assess the current sentiment in a stock, and often present a thesis that is already 'priced-in" as though it's new information. Looking only at other sell-side analysts' ratings seems to be a very limited sentiment guage.

2005 Sep 13 10:05 AM

[vcbeantown:]

NFLX is a complete fraud. Churn is out of control, amortization schedules for DVDs are absurdly long, customer dissatisfaction is high, and the business is NOT a content business (just distribution) 24x 'proforma' EPS -crapola

2005 Sep 14 01:38 PM