As for Netflix and Pandora, they are a bit tougher to value, but both are disruptive in their respective fields of online content distribution and Internet radio.
With Netflix shares having gone into bear market territory, down 23% from the March 4 high, and off 5% year to date, Anmuth is confident "Netflix can continue to improve the quality of its streaming video service to drive greater leverage and scale across its subscriber base, and ultimately exercise pricing power through tiered plans." He believes that the launch of House of Cards in February, along with other content, likely boosted subscriber additions, and that momentum should carry throughout the year.
The biggest fears surrounding Netflix, aside from increased competition, are the concerns about net neutrality, demonstrated in the recent additional payment from Netflix to Comcast (CMCSA). "However, we believe the recent Comcast deal came at economics that did not change the equation much for Netflix, and we have already seen early improvements in Comcast speed," Anmuth note. "We believe there is slightly more streaming video competition on the margin, with both Amazon and Hulu pushing into originals more and Amazon into the living room with FireTV. However, we continue to believe Netflix content is superior, and FireTV also features Netflix.
Terms of the Netflix/Comcast deal, announced in February, haven't been disclosed.
Anmuth rates Netflix shares "overweight."
Pandora, which has seen its shares collapse 28% since their March 5 high, remains Anmuth's favorite SMid-cap name (rated "overweight"), as it's a "highly compelling pure play on mobile advertising."