Analysts: Netflix Should Get 'Oscar' Nod

27 Jan, 2011 By: Erik Gruenwedel

Forget Oscar nominated movies such as Inception, True Grit, The Fighter and Winter’s Bone — analysts say there is just one clear winner for best picture of the year: Netflix.

The day after the Los Gatos, Calif.-based online disc rental pioneer again posted record quarterly financials — defying naysayers who believed its top-heavy share price was about to become a short-seller’s dream — analysts gushed elevated praise.

“Netflix’s growth story should have received an Oscar Best Picture Nod,” Merriman Capital analyst Eric Wold wrote in a Jan. 27 note. “We continue to be positive on Netflix’s DVD-by-mail opportunity, but are increasingly optimistic about the dynamics of streaming and its ability to drive subscriber growth and profit margins.”

Wold said with Netflix operating at an estimated $70 million to $75 million operating income run-rate above previous estimates, it can easily absorb its projected $50 million second-half 2011 operating loss launching a streaming service, most likely in the United Kingdom.

“It is entirely conceivable that Netflix could launch into a new market every year,” Wold wrote.

Analyst Ralph Schackart with William Blair & Co. in Chicago believes Netflix will end the year with 30.1 million subscribers and revenue exceeding $3 billion.

He said Netflix’s share price (up more than 13% in midmorning trading) reflects high investor expectations, but may not reflect the potential heightened risk associated with studios’ experimentation with new release windows, the potential for bandwidth caps and an increase in digital competition.

“Therefore, we maintain our 'market perform' rating but acknowledge that the business has a lot of momentum and some of our competitor concerns may be muted if subscribers continue to increase and margins continue to scale, thereby giving Netflix increasing leverage with content owners,” Schackart wrote in a note.