Ahead of the Bell: Netflix

AP News
Posted: Feb 24, 2014 8:37 AM

NEW YORK (AP) — Netflix shares edged up ahead of Monday's opening bell on news that the online video service had reached a deal with Comcast to ensure that its TV shows and movies are streamed smoothly.

No details have been released about payments to Comcast, which had long been resisted by Netflix, which uses a tremendous amount of bandwidth.

The two companies said in a joint statement Sunday that they are establishing a more direct connection to provide a better service to customers that will also allow for future growth in Netflix traffic.

Netflix had 33 million U.S. streaming subscribers at the start of the year and accounts for about one third of all traffic on the Internet, according to research firm Sandvine. As the company has grown, Internet service providers like Comcast have pushed for a deal to compensate for strain on their networks.

Citigroup analyst Mark May, who backed his "Neutral" rating for Netflix , said that without knowing the terms of the deal, it's tough to tell whether it's a good or bad thing for Netflix. He noted that Comcast currently counts 27 percent of all U.S. broadband subscribers as customers and that number could rise to 43 percent if its deal to buy Time Warner closes.

The lack of information about the deal pushed the stock both higher and lower before the opening bell as investors tried to determine whether it would benefit Netflix. The company's shares have spiked 140 percent in the past year.

May believes that the deal could become a blueprint for agreements with other broadband providers and that Netflix may have gotten more favorable terms that it would have otherwise given Comcast's desire to cooperate given the pending deal for Time Warner.

In premarket trading, shares of Netflix Inc. rose $5.04 to $437.27.