Optimism added to Netflix queue

Firm 'hitting on all cylinders' after strong Q3 results

Netflix Inc. was the biggest gainer on The Hollywood Reporter's Showbiz 50 stock index Tuesday as Wall Street expressed optimism about the company's competitive position following its strong third-quarter financial report and outlook late Monday.

As a result of the better-than-expected performance, several analysts raised their price target on the stock.

Shares of Netflix closed up 18.6% at $27.37 after going as high as $28.10 in intraday trading. This brought the stock closer to its 52-week high of $33.12.

Tuesday's growth spurt by Netflix handily exceeded a 4.86% gain in the shares of Martha Stewart Living Omnimedia to $21.59, which made the company the second-biggest advancer on the THR Showbiz 50 index for the day. MSLO shares also hit a 52-week high of $21.63 on Tuesday.

Netflix after the market close Monday reported a third-quarter profit of $12.8 million, up 84.2% year-over-year, on revenue of $172.7 million, up 48.2% (HR 10/24). It added 493,000 net subscribers to reach 5.7 million.

In a research report Tuesday, Citigroup analyst Tony Wible lauded Netflix for "hitting on all cylinders," saying the stronger-than-expected third-quarter results were "driven by stronger key metrics and upside to revenue and margin."

He added that the firm's "strong 2007 guidance (despite recent download products) reinforces our belief that the download threat has been overstated." Netflix on Monday said its initial 2007 outlook calls for a profit of $55 million-$60 million and higher subscriber net additions than this year.

Overall, Wible boosted his price target on Netflix shares to $33.50 and maintained his "buy" rating, arguing that the company will be "delivering superior entertainment value, scaling its business model and increasing barriers to entry."

Jefferies & Co. analyst Youssef Squali also increased his price target on Netflix shares — in his case to $32.

He cited "impressive subscriber growth and profitability" and also touted the company's competitive position.

"Netflix is benefiting from its lower price points, a more favorable competitive environment with a lack of traction from (video-on-demand) and digital downloading services so far, and improvement in management's customer-acquisition ability," Squali wrote. "We expect this favorable environment to continue for some time as reflected by this week's Blockbuster elimination of its $5.99 monthly (online subscription) plan," which emerged before Netflix's earnings report (HR 10/24).

Wall Street will now be interested to find out more about Netflix's online movie rental service, for which CEO Reed Hastings said Monday the firm will unveil details in about 90 days. The company will spend about $40 million to develop it, he said.