May 31, 2005
SpeculatingStocks.com Stock Pick: Netflix, Inc. (NFLX)
Stock Price: $14.55 (long-term strong buy)
Netflix, Inc. is an online movie rental subscription service in the United States. There are no due dates and no late fees. Subscribers select titles at Netflix's Website, www.netflix.com, aided by the Company's recommendation service, receive them on DVD by first-class mail and return them to Netflix at their convenience using the Company's prepaid mailers.
The company currently has over 3 million subscribers to its online movie rental service, up 56% during the first quarter. NFLX's closest competitor BBI, Blockbuster, has 1 million subscribers. Walmart pulled out of the online rental race, and instead partnered their 100,000 subscribers with NFLX. NFLX now has the largest retalier in the world on their side.
If Blockbuster pushed their prices higher, NFLX could easily raise their monthly subscriber fee and swing the company to a much higher annual profit. Annual profit last year for NFLX was $21.6 million.
NFLX was above $30 this time last year. The competitive landscape has caused NFLX to drop, but it appears the company has a stronger hold on the online movie rental business than investors thought.
On May 19th, NFLX hit $19.23 on major volume of 21.4 million. Over half the 41 million float was traded on the Walmart news. This could have been because of a short squeeze. Still, over 28% of the float is being shorted. NFLX has now dropped back down to a reasonable entry price.
SpeculatingStocks.com Target Price: We expect NFLX to hit $30.00 within the next 6-12 months with possible strong upside surprises.