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Netflix, Inc. Price Target Upped On TV Unbundling

Netflix has been a clear beneficiary of cord cutting and could benefit even more as the pay TV trend of unbundling services continues. Cantor Fitzgerald analysts upgraded Netflix based on the unbundling trend.

Netflix, Inc. Price Target Upped On TV Unbundling

However, a recent survey conducted by another firm suggests consumers either aren’t aware that unbundling is happening or the trend isn’t happening as quickly as the Cantor Fitzgerald team seems to think it is. Also “cord cheaters” may be taking a bite out of Netflix’s profits.

Netflix price target to $500

In a report dated March 24, analysts Youssef Squali, Kip Paulson and Naved Khan said they increased their price target for Netflix from $450 to $500 per share and reiterated their Buy rating. They cited “a recent pick-up in momentum around TV unbundling.” They think this trend will speed up the migration from traditional cable TV to internet TV and that Netflix is best-positioned to take advantage of this trend.

The Cantor Fitzgerald team said they think Netflix offers the “best bang for the buck” in a world in which TV is less bundled. They point out that the company spends more than its peers on content and will potentially spend more than $4 billion on content this year alone, compared to $3.2 billion last year.

Amazon Prime Instant Video and HBO are each expected to spend only about $2 billion. However, HBO’s spending on original content is closer to $1 billion, compared to Netflix’s $300 million on original content last year.

Netflix holds a commanding lead over peers

A recent survey conducted by Blueshift Research found that Netflix continues to be far ahead of its peers in terms of subscribers. In fact, the company’s growth surged between December and March. The firm said in December, 44.7% of respondents said they use Netflix, compared to 49.1%. The next closest video streaming service in use is YouTube, with 34.6% in December but 31.9% in March.

Here’s how the major streaming providers stacked up against each other in Blueshift’s survey (graph is courtesy Blueshift):

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The firm did note that Amazon Instant Video appears to be catching on more quickly than Hulu Plus.

Are viewers dumping pay TV?

The firm also asked consumers about whether they were canceling their cable or whether they had plans to do so. According to Blueshift, there was a decline in the number of participants who said they were using pay TV by 6.2 percentage points between December and March.

For those who have not canceled their pay TV service yet, many said they’re using it and liking it. Other reasons given included that they receive an “old promotional rate that is cheap” or because the only place to watch certain programs is on pay TV.

Still others said they won’t cancel their pay TV service because it is part of a bundled service and they would pay more for internet if they canceled it—suggesting that bundling is still going to be a challenge for streaming companies like Netflix in the near term.

“Cord cheaters” pose a threat to Netflix, others

Another threat identified by Blueshift is “cord cheaters,” which are those who use someone else’s video streaming account to watch shows. According to their estimates, about 25.5% of Dish Network’s Sling TV users are cord cheaters.

The firm further states that cord cheating could be the reason for the discrepancy between its findings and Nielsen’s. Nielsen has reported that 40% of households use a streaming TV service, but Blueshift found the percentage to be more like 68%.

As of this writing, shares of Netflix were down 3.22% to $424.15 per share.