Netflix shares rise ahead of 3Q report

AP News
Posted: Oct 22, 2012 3:32 PM
Netflix shares rise ahead of 3Q report

LOS ANGELES (AP) — Netflix Inc. shares rose Monday after two analysts said they remained upbeat on its shares despite worries that the company will reduce its domestic subscriber growth forecast for the year when it reports quarterly results Tuesday.

THE SPARK: Citi analyst Mark Mahaney backed his "Buy" rating and $120 price target in a research note released after the close of trading on Friday. He cited increasing user satisfaction levels in a recent consumer survey and said Netflix was extending its lead over video services such as Hulu, Blockbuster and HBO Go in terms of unique visitors each quarter.

Cantor Fitzgerald analyst Yousset Squali also kept a "Buy" rating on the shares in a note out Monday. He has a $70 price target.

THE BACKGROUND: The company has said that its strategy is to use the profits from its U.S. operations to fund its international expansion, which requires initial startup capital and hefty marketing costs. Its hope is to grow faster than competitors and become dominant before others catch up. This month, the company rolled out streaming services in Denmark, Sweden, Norway and Finland. It also operates in Canada, the U.K., Ireland and several Latin American countries.

THE ANALYSIS: Both analysts are expecting the company to add about 1.5 million streaming customers in the United States in the quarter through September, which is on the high end of the company's expectation that it will add between 1 million and 1.8 million new streaming subscribers in the U.S.

The company has said that if it reaches the high end of its third-quarter domestic streaming target, it would be on track to add 7 million streaming customers in the U.S. by the end of the year.

Several analysts predict that the company will cut that forecast. Squali expects the company to add 5.8 million U.S. customers by the end of the year, for 27.5 million total. Mahaney is predicting 6.1 million net new domestic streaming customers by year's end. That would leave it with 27.7 million streaming customers in the U.S.

SHARE ACTION: Netflix shares rose $3, or 4.6 percent, to $67.98 in Monday afternoon trading. That's on the low end of a volatile range between $133.43 and $52.81 in the last 52 weeks.