Tags: Netflix | Streaming | NFLX | dvd | rental | mail | movies

Netflix Aims to Leap to Streaming Riches

Wednesday, 04 May 2011 01:52 PM

Not that many years ago, a bet on standalone video stores looked pretty silly. Go to a store, rent a videocassette of a movie, and then take it back? Who does that?

The video-rental chains of yore are in bankruptcy now, of course, but a similar question was likely going through investors’ minds when Netflix (NFLX) was getting its DVD-by-mail service going. Yet the rental service busted through all expectations and roared from under $50 to above $250 in just a few years’ time.

Game over? Not hardly. The company has taken a huge new bet that it will be the center of online, streaming video rental. Like the DVD business, it seems like nonsense at first. Won’t the content producers, like Viacom (VIA) and NBC-owner and cable giant Comcast (CMCSA) beat them to the punch? 

Yet Netflix is hard to dismiss, even with heavyweights all around it trying to negotiate terms. The company has announced a stream of new content agreements, lately with CBS and Disney-ABC, and it is moving quickly to seal deals with other major producers, such as Viacom and Lions Gate. It is streaming into Canada and working on deals to move content to Latin America.

The company sits on the hard-to-define nexus of digital content, one which inevitably will move toward an entirely Internet-driven experience, whether viewers realize it or not. Importantly, Netflix content is available via Sony (SNE) Blu-Ray players, and many people unlikely to tune in via their televisions can watch movies now on computer screens, smartphones, and tablet devices.

In first-quarter earnings, Netflix told investors it had reached 23.6 million subscribers, adding 3.3 million in the period. Revenue hit $706 million in the quarter, up 43 percent year over year. Net income was $60 million, up 88 percent. Free cash flow was $79.3 million, the company reported.

Aiming for new heights

Can Netflix convert in the way so many other potential streaming services couldn't? Citigroup seems to think so. It has raised the target price to $300, citing sustainable subscriber growth in the United States and already huge 27 percent penetration of U.S. homes with broadband Internet.

Analysts at Canaccord Genuity agree, aiming for $300 as well based on first-quarter results.

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Not that many years ago, a bet on standalone video stores looked pretty silly. Go to a store, rent a videocassette of a movie, and then take it back? Who does that? The video-rental chains of yore are in bankruptcy now, of course, but a similar question was likely going...
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