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Analyst Says Netflix to be Profitable by Q4

30 Jan, 2012 By: Erik Gruenwedel

Netflix is projected to post fourth-quarter (ended Dec. 31, 2012) net income of $8.9 million, ending three quarters of losses as it begins to capitalize on a robust streaming platform that distances itself from competitors such as Amazon Prime, LoveFilm Instant and Hulu Plus, an analyst said.

Eric Wold with B. Riley & Co. said he lowered his rating on the stock to “neutral” from “buy” after shares gained $1.64 to close Jan. 30 within 1% of his price target of $125 per share.

The Los Angeles-based Wold, in a note, said the projected Q4 net income follows estimated quarterly losses of $16.5 million in Q1, $12.4 million in Q2 and $5.1 million in Q3.

Notable cost drivers in 2012 encompass a staggering $2.1 billion in streaming content acquisition fees, including a projected $399 million in Q1, $479 million in Q2, $575 million in Q3 and $690 million in the profitable year-end fiscal period.

By comparison, Netflix is expected to spend about $25 million monthly for rental disc acquisitions.

“Although initial international results have been somewhat of a mixed bag, we believe our estimates currently reflect a cautiously optimistic stance on near-term sub growth and loss reductions in the coming quarters — giving Netflix time to learn the markets and adjust the messages and content mix as necessary,” Wold wrote. “While we expect Netflix to increase overall content spend, we believe the relative fixed nature of that spend will enable a return to profitability and leveraged [share earnings] growth by the end of 2012.”

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