Analyst Upgrades Netflix Stock Rating, Cites "Rising Original Content"

Cowen's John Blackledge also mentions improving subscriber trends and the results of a user survey that gave the streaming service a higher rating than HBO Go and other rivals.

Cowen & Co. analyst John Blackledge on Friday upgraded his rating on Netflix's stock from "market perform" to "outperform," citing improving subscriber trends and "rising original content."

He raised his price target on the stock to $382 from $360. It closed Thursday at $328. "Our upgrade is driven by strong user survey results (rising time spent, tenure, pricing power, etc.); accelerating original content in '15; and compelling risk/reward," said the analyst.

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Cowen & Co. did a survey of 1,000 people in the U.S., which Blackledge says yielded strong results. For example, he said Netflix's user rating is the highest among OTT video service, including 22 percent higher than that of HBO Go. Netflix got a 4.1 rating on a scale from 1 through 5, with HBO Go and Amazon Prime Instant Video each getting a 3.4 and Showtime Anytime and Hulu Plus each getting a 2.9 rating.

Also, time spent on Netflix "is rising at 7.7 hours per week versus 6.7 from July ’13 and on par with live TV viewing, and 87 percent higher than next closest OTT provider," Blackledge said. Hulu Plus came in at 4.1 hours, Amazon Prime at 3.5 hours, HBO Go at 3 hours, and Showtime Anytime at 2.7 hours, according to the survey conducted Dec. 30-Jan. 2.

Plus, he highlighted that "awareness of original programming has risen among all cohorts," adding: "Original programming should continue to improve subs metrics."

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Concluded Blackledge: "Netflix's virtuous cycle of better content driving more subs, which yields resources to acquire more content and drive higher subs, has resulted in a now proven U.S. streaming operating model that could generate earnings per share of $9-plus in 2015, rising to $16 in '19. We forecast $4.4 billion in content expense in '15, which will increase over time and positions Netflix to capitalize on the virtuous cycle. This extends to its international streaming unit, which we view as having the similar margin profile at scale over time as the U.S. segment."

Twitter: @georgszalai

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