Netflix (NFLX) Could Make Jump to Cable

NEW YORK (TheStreet) -- In a move seemingly at odds with its streaming strategy, Netflix (NFLX) could add its content to traditional cable channels, Bloomberg reports.

Speaking at the 22nd Annual Goldman Sachs Communacopia, Netflix CFO David Wells said it's up to the cable service providers to "decide how much of a competitor they view us as or a complement".

Earlier this month, Netflix signed with Virgin Media to allow streaming integration with Virgin's set-top box. This is the first time a major Pay-TV company included Netflix in their programming menu.

Competitor Hulu, jointly-owned by NBCUniversal  (CMCSA), Fox Broadcasting Company  (FOX) and Disney  (DIS), is looking to offer an ad-free service to members for an additional cost. Hulu's current premium option, Hulu Plus, of which it had 4 million paying subscribers as of April, allows members a greater selection of content but still hosts advertisements before and during viewing. Netflix had 37.6 million as of the second quarter ended June 30.

A potential disruptor to both, Amazon  (AMZN) recently announced it will add offline viewing functionality to its Prime Instant Video Service.

On CNBC's 'Mad Money', Jim Cramer said while the valuations of this "cult stock" defy logic, few investors seem to care. 

Netflix shares were slightly lower in Friday trading, off 0.11% to $313.18.

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

"We rate Netflix 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 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, premium valuation 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 17.8%. Since the same quarter one year prior, revenues rose by 20.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The gross profit margin for Netflix is currently very high, coming in at 80.03%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 2.75% is above that of the industry average.
  • Netflix 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 reported lower earnings of 29 cents vs. $4.17 in the prior year. This year, the market expects an improvement in earnings ($1.45 vs. 29 cents).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. When compared to other companies in the Internet & Catalog Retail industry and the overall market, Netflix's return on equity is below that of both the industry average and the S&P 500.

Written by Keris Alison Lahiff.

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