Analyst Compares Netflix to HBO and Starz, Boosts Stock Price Target

"Netflix is a TV network company, and it's cheap," Lazard Capital Markets analyst Barton Crockett wrote in a report Friday, boosting his stock price target for the online streaming giant.

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Arguing that its content strategy and profit margins would become more and more like Time Warner's HBO and Starz, he raised his target from $250 to $325. and maintained his "buy" rating.

"We've reviewed our Netflix assumptions and concluded that Netflix is essentially a successful TV network company, trending towards the much higher-margin structure of those peers," Crockett wrote. "This is prompting a hike to near-term and long-term estimates."

Explained the analyst: "Successful TV networks are defined by exclusive popular video content that's easy for most people to access. Netflix, we believe, is achieving this same structure."

Netflix's content spend, for example, is near the biggest TV network companies, he highlighted.

"And Netflix is getting more exclusive, popular content via originals and exclusive deals with major studios like Disney and DreamWorks Animation," Crockett added.
"This means Netflix's margins should move up."

Calling Starz and HBO "the closest comparables to Netflix," the Lazard analyst estimated that those companies have U.S. profit margins in the 24 percent-36 percent range. But Netflix's first-quarter domestic streaming business margin was only 3.7 percent, he estimated.

Concluded Crockett: "Near-term, sub growth drives margin growth. Longer-term, spending flattens out. This view makes Netflix cheap."

Email: Georg.Szalai@thr.com
Twitter: @georgszalai