This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Don't Turn Off Netflix

Are Netflix's costs still rising? Yes. But let's also agree that the growth performance has supported the increased expenses. Netflix said it added 1.2 million streaming subscribers worldwide, ending the quarter with 37.8 million. Of those new subscribers, 630,000 came from the U.S. Here, too, while it may cause plenty of anxiety to see the company's aggressive growth plans, we must also agree these investments are paying handsome dividends.

For that matter, I don't believe the company and, in particular, Reed Hastings have gotten enough credit for how well Netflix is now performing internationally, as costly as it may be. Unlike the rivalry that exists within the cable and satellite industry, Netflix subscribers have proven to be remarkably loyal. Don't think for a second that these rivals don't have just as much to fear from Netflix as Netflix should fear them.

Let us also remember that Netflix's model offer subscribers more options and costs much less. Time Warner and Comcast (CMCSA) are constantly fighting for customers who are looking for more choices that an a-la-carte model might bring. They are demanding more flexibility. They get it from Netflix. While Amazon's Prime offer similar advantages, it falls short on selections.
[Read: <a target="blank" data-add-tracking="true" href=""><em>How I had an Extravagant Vacation for $1,000</em></a>]

Plus, given that Netflix has begun to produce exclusive content, the company now has a key way of differentiating itself from Amazon. While Netflix is still far from giving HBO a run for its money in the original series category, investors can be encouraged by the fact that Netflix is steadily improving margins, while revenue should continue to grow at double digit clips for several more years.

There will be many who will point to Netflix's soft guidance as grounds to stand taller on their "Netflix will die" soapboxes, but understand that it's the summer months -- a period during which people are expected to travel and be less engaged with what's on television. Netflix is just being a bit cautious here. Hastings is right not to set his company up for disappointment.

I believe Netflix has tremendous long-term potential. Granted, the subscriber totals for this quarter didn't impress the Street. But I don't believe this is a situation where the company has suddenly "peaked," as some have already suggested.

I would be a buyer here on this dip to $244, which is 10% below its 52-week high. I still expect the stock to reach my year-end price target of $300 on the basis on growing free cash flow and profits.

At the time of publication, the author held no position in any of the stocks mentioned.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
NFLX $82.79 0.00%
AAPL $94.02 0.00%
FB $104.07 0.00%
GOOG $683.57 0.00%
TSLA $162.60 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs