February 7, 2008

Write-up on NetFlix

Zacks has a write-up on NetFlix and they see the stock as a good buy:

Netflix just blew the cover off of its fourth-quarter earnings report. This was the third straight quarter in which the company exceeded analyst expectations. The stock has an ROE of 13%, much better than the 2% industry average. The balance sheet is clean with no debt. Additionally, the stock is trading at a low 1.3x sales.

Full Analysis

Netflix, Inc. (NFLX) provides online movie rental subscription services in the United States. It provides its subscribers access to a library of movie, television, and other filmed entertainment titles on digital versatile disc (DVD). As of December 31, 2006, the company served approximately 6,300,000 subscribers with a library of approximately 70,000 movie, television, and other filmed entertainment titles on DVD.

NFLX recently said that its board authorized the repurchase of up to $100 million of its common shares. The buyback plan runs through the end of 2008, Netflix said. This is a sure sign that management has confidence in the company.

The company's fourth-quarter profit trounced analyst expectations as the online DVD rental service gained 451,000 customers, providing further evidence the company has regained the upper hand in its bruising battle with rival Blockbuster Inc.

NFLX earned $15.8 million, or 24 cents per share, for the final three months of 2007. That was 6% more than its net income of $14.9 million, or 21 cents per share, in the same period a year earlier. Revenue climbed 9% to $302.4 million, from $277.2 million the prior year. Netflix ended December with 7.48 million subscribers, up from 7.03 million in September.

Netflix also predicted it will lure as many as 1.4 million additional subscribers this year and produce annual earnings of $1.12 to $1.24 per share -- well above the average estimate of 90 cents among analysts. The company's optimistic outlook for 2008 reflects management's belief that the threat posed by Blockbuster has faded. Netflix also is betting a new online movie rental service introduced last week by Apple Inc. won't dent the company's growth.

"We achieved strong results in 2007 -- ending subscribers up 18%, revenue up 21% and net income up 36% -- despite facing tough competition for much of the year and investing strategically in our online video initiatives," said Reed Hastings, Netflix co-founder and chief executive officer.

Netflix ended the fourth quarter of 2007 with approximately 7,479,000 total subscribers, representing 18% year-over-year growth from 6,316,000 total subscribers at the end of the fourth quarter of 2006 and 6% sequential growth from 7,028,000 subscribers at the end of the third quarter of 2007.

The company has now exceeded analyst projections for three straight quarters. Over the past 30 days, 2008 estimates have increased 29 cents to $1.17 per share. The stock has an ROE of 13%, much better than the 2% industry average. The balance sheet is clean with no debt. Additionally, the stock is trading at a low 1.3x sales.

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