Silicon Valley News

Thursday, January 27, 2011

I'm still long Netflix

I retweeted an article this morning that I wrote last month suggesting that it would be ill-advised to short Netflix. I sent the unabashed retweet after learning that Netflix stock was up sharply after hours yesterday following an earnings report that exceeded analysts' expectations.

With the emergence of Web TV, I saw Netflix as a good investment because of the role that it has played in pioneering streaming video. My top stock portfolio, Silicon Valley 2.0, is outperforming the S&P by some 27 percent annually. Netflix and Nvidia holdings have boosted the fund lately.

Netflix stock gained 15% today after issuing an upbeat shareholder letter and earnings broadcast that highlighted strong subscriber growth and continued profitability.

Netflix stock has more than tripled in the past 12 months. Before yesterday's earnings report, many short-sellers who felt Netflix was overvalued targeted the stock. Lots of analysts were surprised as well by Netflix's continued growth and are scrambling to reevaluate the stock. Only 23% of the analysts covering the stock had a buy rating on the shares before the earnings report.

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The broken line on the chart shows how analyst price targets moved up sharply after the market closed yesterday.

Meanwhile, despite its small size, Netflix has surprised many observers with its continued success in the vital and contentious battle to secure premium content for its viewers. As part of that effort, Netflix recently convinced a senior vice president at Walt Disney, Jonathan Friedland, to become the new vice president of global corporate communications at Netflix.

Netflix rival Hulu is owned by Disney. Hulu's owners, industry titans NBC Universal, News Corp. and Disney, are worried that free Internet versions of their most  popular TV shows are eroding its core business and are at odds among themselves and with Hulu management about the amount of free content it offers, reports the Wall Street Journal.

Earlier this week, Netflix content chief Ted Sarandos  threw down the gauntlet in its public battle with Time Warner to gain more popular content.  HBO's content deal with Time Warner ends in 2014, reports The Hollywood Reporter.

"We will be an aggressive bidder for that content," declared Sarandos. "That will be good for Warner Bros., not so good for HBO."

This post originally appeared on Benzinga.