I'm a fan of Netflix (NFLX) as a consumer. About six months ago I "cut the cord" from DirecTV (DTV) after determining I only watch about ten channels, including local, and many of the other 100 channels were shopping channels, religious channels, Laten channels, or other channels that didn't interest me. I bought a Roku set-top box, a high-definition antenna for over-the-air local HD programming, and I subscribed to Netflix and HuluPlus. Netflix and HuluPlus each charge $7.99 per month instead of my DirecTV plan that cost $100 per month. With Netflix and HuluPlus I have more commercial free HD content than I will ever be able to watch in the next 10 years. I don't think my story is unusual. According to Convergence Consulting Group approximately 2.65 million people ditched their cable or satellite television subscriptions from 2008 to 2011 and the number of "cord cutters" continues to grow.
Now, I'm starting to become a fan of Netflix as a potential investor.
Below, I will offer five reasons I believe Netflix shares are poised to continue moving up - but first a brief description of Netflix:
Netflix, Inc. provides Internet subscription services for TV shows and movies in the United States and internationally. The company offers its subscribers to watch unlimited TV shows and movies streamed over the Internet to their TVs, computers, and mobile devices. It also provides standard definition DVDs and Blu-ray discs to its subscribers. The company was founded in 1997 and is headquartered in Los Gatos, California.
|52 Week High/Low||$52.81/$133.43|
|Most Recent Close||$66.56|
Five reasons I see Netflix shares continuing the recent upward trend:
1. Growing Subscriber Base & Revenues - Netflix has increased subscribers by nearly 25 million over the last year growing from 5 million in September 2011 to 30 million currently. Netflix continues to aggressively expand and grow its subscriber base worldwide. Revenues are approaching $1B per quarter with the average analyst estimates at $905.1M for the current quarter - over $80M higher than the same quarter last year.
2. Insider Buying - Over the last six months insiders have purchased nearly 350,000 shares ranging from $71 - $85. It's been said many times there are many reasons for insiders to sell but only one reason for insiders to buy - when they believe the share price presents a compelling value and is likely to rise.
3. Increasing Customer Satisfaction - According to Citigroup analyst Mark Mahaney, Netflix's customer satisfaction numbers have been rebounding based on a Citigroup survey of 3800 past and present Netflix users. Mahaney reiterated his $120 price target and called Netflix a "screaming buy" on October 3rd.
4. Attractive Acquisition Candidate - Whitney Tilson a well-known value investor and hedge-fund manager has turned bullish on Netflix and says it could be a "bite-sized acquistion for a half dozen companies". He also mentions that an offer could spark at bidding war for Netflix's 30 million subscribers.
5. Strong Recent Momentum - Netflix recently broke through its 50 day moving average of $59.08 with a strong uptick in volume and the MACD has turned up and is showing an increasing positive divergence.
Netflix does have strong competition from Amazon's (AMZN) Prime offering, HuluPlus, and Coinstar's (CSTR) Redbox.
Amazon Prime offers a subscription service for $79 per year which includes a free two day shipping upgrade for products purchased from Amazon and a movie/tv library of 5000 titles. Besides HuluPlus and Netflix - Amazon was the only other streaming company I considered - mainly because I do purchase items from Amazon. However I ended up choosing Netflix and HuluPlus due to less overlap of content and HuluPlus airing current season tv shows.
Coinstar's Redbox requires a person to rent a dvd from a Redbox kiosk and then return it the next day. It isn't nearly as convenient as streaming - so while we may use Redbox occasionally - it is only to supplement our subscription streaming content.
My personal experience and high satisfaction as a Netflix customer, coupled with the aforementioned recent positive developments, lead me to believe Netflix shares are likely to continue moving upward.
Graph and financial data sourced from FinViz.