(By Rich Bieglmeier) Netflix, Inc. (NFLX) is streaming higher as a Morgan Stanley analyst says the stock's recent run off the matt has legs. The analyst, Scott Devitt put a price-target of $85 on NFLX and says Amazon (AMZN) isn't the threat many feared.
Eighty-five dollars is a convenient goal as the stock topped-out there following its last attempt to break out of a 2012 slump.
News that Netflix customers were now happier following some self-inflicted, price change wounds help revive the stock from the dead last week. A Citigroup survey found that 48% of customers are "very or extremely satisfied," that's up from 45% in the first half of the year.
The survey included about 3,800 U.S. Internet users, which included more than 1,200 current and 700 past Netflix subscribers. According to the survey, 35% of respondents call Netflix a top destination, up from 25 percent in the second quarter.
Word of higher satisfaction attracted buyers last week as the stock climbed from $54.60 to $66.56 between Monday's open and Friday's close. Volume climbed along with the price, making NFLX the fourth most accumulated company as a percentage of market-cap in iStock's weekly follow the money screen. More than $104 million – 2.8% of market cap - poured into the stock during the week of October 1, 2012.
Usually, accumulation precedes appreciation, but, in this case, it's been simultaneous. As we mentioned up top, NFLX shares got a shot of adrenaline in July, only to crash by the Ruby month's end. To start 2012, Netflix's pattern mirrored the summer's move and the action we've seen during the last six trading days, but unlike July's spike and fall, January's rally continued to $130, after starting at $69ish.
Obviously, bullish investors are hoping the current reaction is more like January's move than July's fake-out rally. Whether it is a or b will likely be determined on October 23rd when the entertainment company releases it 3rd quarter earnings and guidance.
Analysts forecast Netflix to earn 4 cents for the quarter, down from $1.16 a year ago. For 2013, the street sees consensus earnings of $0.91. That means NFLX is trading with a forward P/E of more than 80. That's rich for our blood, especially when you consider sales are expected to grow by only 14%, and earnings to increase by 15.49% on average for the next five years.
Investors will be watching to see if the new feelings of happiness turn into unique subscriber additions during the third quarter. In the second quarter, new subscribers slowed dramatically from the first quarter, falling from 2.88 million to 979,000.
The rest of the financial statements looked OK to iStock. Management spent more on marketing, technology and acquiring content, which is cool with us. Meanwhile, general and administrative expenses fell. It's a good combo.
The big question is whether marketing added new subscribers or just enhanced the mood of surveyed internet users.