Netflix, Inc. (NASDAQ:NFLX) coverage has been initiated with a neutral rating and a $235 per share price target by analysts at Citi. The firm also initiated coverage on two other major tech stocks today: Facebook Inc (NASDAQ:FB), which it also initiated with a neutral rating, and Google Inc (NASDAQ:GOOG), which it initiated with a buy rating.
Potential Catalysts At Netflix
Citi analyst Mark May issued a report to investors explaining why they have a neutral rating on a stock that’s been doing so well year to date. He said the biggest upside catalyst for the company is a pricing change, although the timing of such a change is still unknown and may not even happen within the next 12 months. According to May, without a change in price, Netflix, Inc. (NASDAQ:NFLX) is likely to outperform its current level.
He said they “could get more constructive” if a price change was more likely or even if the company slowed down its acquisition of new content while also posting continual subscriber growth. Other events Citi analysts would see as positives for Netflix include better than expected results from international markets and better signs of traction in the company’s original programming.
Details On A Pricing Change At Netflix
In determining their current model, the analysts did not factor a price change. They said if Netflix, Inc. (NASDAQ:NFLX) did “recognize some form of pricing leverage,” they see it as having a positive impact on their forecasts and price target.
For example, they estimated that every 5 percent increase in domestic streaming average revenue per user would add about $65 million in incremental contribution profit and raise their price target by $34 or 15 percent.
Netflix’s Secular Growth
Nonetheless, Citi analysts see Netflix, Inc. (NASDAQ:NFLX) “as a secular growth story and as an impressive disrupter of a large end-market.” They note that as high-speed Internet becomes a standard part of homes and as various content providers look to expand the monetization of their content and connect with consumers, Internet video is likely to continue growing.
They compared the market to how “the build-out of the cable plant once drove MSO subscriber growth.” They also said that the proliferation of mobile Internet devices and high-speed Internet connections at home, particularly in the living room, are the “near-term accelerants” to the growth of Internet video.