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NICK SOUSA, KAPITALL: Netflix (NFLX) made headlines this week by using Facebook to announce that customers watched over 4 billion hours on its platform over the past three months. New guidelines have been set by the SEC that allow companies to use Facebook and Twitter to communicate material information as long as they notify investors first. It wouldn’t hurt to check if companies in your portfolio are starting to utilize social media to avoid missing any timely information that could affect your investment decisions. (More analysis by Nick Sousa: GameStop: A Stock With More Potential Than You Think)
Netflix has been performing very well thus far in 2013. The internet television network service has a 52 week range of $52.81 – $197.62 and has been on an 87% upward trend this year. Why is Netflix, with a P/E ratio of 598.13, trading so highly?
The allure is in Netflix’s estimated performance for the next two years. While EPS is currently at $.29, it is projected to reach. $88 in 2013 and $2.38 in 2013. These projected EPS numbers will be fueled by a 16% and 18% growth in revenue, resulting from a jump in subscribers of 33 million in 2012 to more than 53 million in 2014. Netflix should also experience stronger contribution margins and growth fueled by a potential mobile device platform and a new integration with Facebook, which allows users to get video recommendations from friends. Goldman Sachs analysts have also increased targets for subscribers, revenue, and profitability, while also estimating that Netflix could squeeze
5% more revenue per subscriber in the U.S. in 2014.
The price tag is high on Netflix, but so are its projected future results. However, estimates are just estimates and it remains to be seen if they will manifest into material results. Netflix has a lot of potential and if you think analysts’ estimates will be true, consider watching and waiting for the stock to start pushing up towards its $204 12-month target price before buying in. The stock has been between $165 – $190 over the past month and seems to be recovering from a downward slide that started in late March.
- Nick Sousa, Kapitall Contributor