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What Is Netflix's (NFLX) Next Big Move?

Stocks in this article: NFLX

NEW YORK (TheStreet) -- Not content with merely attracting cable cord-cutters, Netflix (NFLX) will now target a new segment: theatergoers. Chief Content Officer Ted Sarandos discussed Netflix's next big move during his keynote speech at the 2013 Film Independent Forum.

"What we're trying to do for TV, the model should extend pretty nicely to movies. Why not premiere movies on Netflix the same day they're opening in theaters?" asked Sarandos. "As theater owners try to strangle innovation in distribution, not only are they going to kill theaters, they might kill movies."

Distribution restrictions currently include a one-year time period between screenings of tent-pole film releases in theaters and on pay-television channels.

During a recent third-quarter conference call, Chief Financial Officer David Wells expressed frustration with current restrictions.

"We are kind of held to the traditional pay model, meaning movies are not coming to Netflix until they hit pay television," he said. "Even though that window is moving, I don't know if it is moving aggressively enough for people who have experienced a more in-demand and on-demand lifestyle."

Speaking with Deadline, John Fithian, president of the National Association of Theater Owners, expressed his disapproval of Netflix's plans. "Subscription movie services and cheap rentals killed the DVD business, and now Sarandos wants to kill the cinema as well," he said.

Reacting to Sarandos' suggestion of same-day releases for theaters and Netflix, Fithian said, "It makes absolutely no business sense to accelerate the release of the lowest value in the chain."

Separately, streaming giant Netflix sealed a deal with CBS  (CBS) to host all seasons of popular TV series Dexter. Netflix lost access to the series in 2011 after CBS pulled its content on fears it was slighting its pay-TV providers over exclusivity. 

Netflix shares have bounced 1.3% higher to $318.01 at the start of trading Tuesday.

TheStreet Ratings team rates Netflix Inc as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about its recommendation:

"We rate Netflix Inc (NFLX) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • NFLX's revenue growth has slightly outpaced the industry average of 17%. Since the same quarter one year prior, revenues rose by 22.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 300% and other important driving factors, this stock has surged by 450.95% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • Netflix Inc reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Netflix Inc reported lower earnings of 29 cents a share vs. $4.17 a share in the prior year. This year, the market expects an improvement in earnings ($1.70 vs. 29 cents).
  • Despite currently having a low debt-to-equity ratio of 0.42, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that NFLX's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.59 is low and demonstrates weak liquidity.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Internet & Catalog Retail industry and the overall market, Netflix Inc's return on equity is below that of both the industry average and the S&P 500.

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