Strong guidance stuffs Netflix's envelope


Netflix raised its profit, revenue and subscriber guidance Wednesday, and its shares leapt nearly 12%.

The raised guidance spurred a flurry of analyst comments and in many cases raised price targets on the stock.

Several analysts noted that Netflix's higher expectations probably come as a result of lessened competition from Blockbuster given that company's decision to raise prices for its online service in order to generate profits even if it must sacrifice growth.

For the year, Netflix, run by CEO Reed Hastings, said that it will earn up to $1.30 a share, up from its previous forecast of $1.24. Revenue guidance was upped from $1.35 billion to $1.385 billion.

The company said it will finish the year with as many as 9.5 million subscribers, up from the 8.9 million it had expected.

Utendahl Capital Partners analyst Alden Mahabir, one of the more bearish analysts, raised his target from $24 to $28, reflecting his view that Netflix shares are headed for a 14% fall this year based on Wednesday's closing price of $32.43.

"We still have concerns about the long-term potential of Netflix's service given the continued proliferation of VOD, DVRs and emerging online services," Mahabir said.

Meanwhile, Wedbush Morgan Securities analyst Michael Pachter, who rates Netflix shares a "buy," upped his price target $2 to $32.

"We expect the competitive environment to continue to improve in 2008, as Blockbuster is unlikely to aggressively promote its service and Movie Gallery is highly likely to accelerate the pace of store closings," Pachter said.

Citigroup analyst Tony Wible predicted that Netflix stands to gain 1.5 million subscribers who will defect from Blockbuster, but the gains could be short-lived as Blockbuster improves its service throughout the year and presumably ramps up marketing again.

Wible raised his target on Netflix from $30 to $35, though he did not alter his "hold" recommendation.

Netflix was Wednesday's leading gainer on The Hollywood Reporter's Showbiz 50 stock index.

Blockbuster shares closed down fractionally Wednesday at $3.16.