By Jordan Faigen
Oui, Je t’aime Netflix, Inc. (NASDAQ:NFLX).
Netflix in the News
The popular streaming video site announced this week that it will be launching its services in six additional European countries later this year, including France, Germany, Austria, Switzerland, Belgium and Luxembourg. Netflix, Inc. (NASDAQ:NFLX) already has a presence in the U.K., Ireland, Denmark, Finland, Norway, Sweden and the Netherlands, with 48 million customers throughout the globe. The company recently increased the price of a new subscription domestically to $8.99 per month, but the company has not set a price for these new countries. In order to provide applicable content in these new regions, Netflix has had to increase operating costs to purchase appropriate Hollywood, and local, content. However, the ultimate goal is that these initial costs will pay off with international growth.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
An Analyst Perspective
Stifel Nicolaus analyst Benjamin Mogil recently reiterated his BUY Netflix, Inc. (NASDAQ:NFLX) rating and $475 price target after this international announcement. Mogil noted, “The launch in Germany and France is as expected with Austria and Belgium being incremental. We view this as positive as Austria has similar programming tastes to Germany and Belgium to France. Our model assumes a late 3Q14 launch and we assume that across 3Q14 and 4Q14 that international net additions will be 4.1mn subscribers.” Mogil has a +3.1% average return on the stock.
Benjamin Mogil’s Past Recommendations
Mogil has a history recommending entertainment stocks in addition to Netflix such as Live Nation Entertainment (LYV) and Lions Gate Entertainment (LGF). These recommendations have helped him earn a +5.1%average return per recommendation and a 60% success rate of recommendations.
Before his latest Netflix recommendation, Mogil maintained his BUY Netflix rating on April 23. At the time, Amazon.com, Inc. (NASDAQ:AMZN) had just announced a streaming video deal with HBO, and while Mogil saw this as a threat to Netflix, he noted, “What is probably more important right now for Netflix, Inc. (NASDAQ:NFLX) is whether they rein in their pricing increase (i.e. does it go to a $1.00 increase when previously $2.00 was achievable) ambitions.” So, while the deal might have had an impact on Netflix pricing, he was still confident in the company’s overall standing. The stock has jumped from $328.55 at the time of the recommendation, to $380.82 at the time of his last recommendation.
One of Mobil’s highest average return on a stock comes from his Live Nation Entertainment, Inc. (NYSE:LYV). In May of 2012, Mobil recommended HOLD Live Nation after first-quarter losses were not as bad as expected. Concert ticket sales were up 23% worldwide from the beginning of the year through April, but the company reported a net loss of $69.2 million. Mobil noted, the “better-than-expected quarter and upbeat outlook.” By the time Mobil recommended BUY in August of 2013 the stock had moved from $9.05 to $18.32, helping him earn a +25.6% average return on the stock.
Mogil has also made the right moves recommending Lions Gate Entertainment Corp. (USA) (NYSE:LGF). In May of last year, Mogil reiterated a BUY rating on Lions Gate and raised his price target from $25.00 to $29.00. Mogil noted, “The increase is predicated on a number of factors, raising our 2014-2016 estimates. Driving the changes are continued improvements in international contribution for key titles, better domestic film rental splits and lastly a continued floor on home entertainment for key franchises as shown with recent Twilight and Hunger Games DVD numbers. We believe the company to be materially ahead of its $900mn EBITDA guidance (three-year) given our estimates.” This recommendation, along with his three previous recommendations, helped him earn a +21.3% average return on the stock.
But, as some movies fail to make a hit at the box office, Mogil hasn’t always seen positive returns. Mogil reiterated his BUY AMC Networks (AMCX) on May 8 saying, “We are lowering our target price on AMC Networks Inc (NASDAQ:AMCX) to $70 (from $80) as we lower our estimates for 2014 and 2015 on much higher than expected programming and promotional expenses. While we have raised revenue reflecting better ad monetization, this is not sufficient to offset the higher programming costs and we anticipate that margins will be down y/y for the rest of the year.” However, Mogil’s current BUY rating is not enough to offset his previous recommendations, leaving him with a -2.9% average return on the stock.
Despite controversial subscription price hikes, Netflix, Inc. (NASDAQ:NFLX)’s international growth has some analysts ready to buy.
Jordan Faigen covers financial markets and the latest stock market news. She can be reached at Jordan@tipranks.com