streaming service

Are Investors’ Expectations of Netflix Too High?

Whenever you think of streaming movies or TV shows one services immediately comes to mind, Netflix. Netflix has positioned itself as the premiere service for streaming and renting TV shows and movies in recent years. This dominance could be in jeopardy though as multiple contracts with TV and movie companies are up for renewal soon and you can bet those companies will want a lot more money then when they first leased their content to Netflix. Netflix also raised their prices last week, although the company’s blog will have you thinking its their lowest price ever offered. While you used to be able to rent 1 DVD at a time and have their streaming service at $9.99, Netflix has now split the two up and they cost $7.99 each. So instead of it costing $10 for both of them before, it will now cost $16 for the same thing.

While some consumers are outraged at this increase, Hollywood execs are smiling. The increase in pricing may ease concerns in Hollywood that Netflix was charging too little for their content and were pushing consumers away from other products such as on-demand rentals and Blu-ray purchases.

From an investors standpoint, Netflix has been a great stock to invest in. In the past year shares of Netflix have increased 200% from just under $100 to over $300 at its highest point. One analyst believes that investors’ expectations for the company may be too high. Today, Andy Hargreaves, an analyst with PacificCrest, has cut the stock to sector perform from outperform. He believes that for Netflix to be a good buy for investors that the company would have to add more than 50 million subscribers in the U.S., 70 million internationally, and grow operating margins by 30%. Hargreaves wrote, “While these results are possible, they leave little room for tactical missteps, changes in market conditions, or failure of the Netflix brand to resonate with international consumers.” Hargreaves believes that Netflix’s business model remains strong and the that the recent price increase will offset any revenue loss by leaving customers. Shares of Netflix, Inc. (NASDAQ:NFLX) have dropped nearly 4% so far today.

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