Piper Jaffray Upgrades Netflix; Sees Entry Point Amid Domestic Slowdown, Competition Concerns

• The share price of Netflix, Inc. NFLX has appreciated 49.09 percent over the past year, reaching a high of $130.93 on December 4.
• Piper Jaffray’s Michael J. Olson has upgraded the rating on the company from Neutral to Overweight, with a price target of $122.
• Following the pullback in the stock over the past two months, driven by concerns regarding competition and slowing domestic growth, Olson believes that the valuation offers an attractive entry point.

Analyst Michael Olson explained, “Our consistent commentary on NFLX has been that it is a volatile name and while we expect the general trend to be "up and to the right," we also expect periodic pullbacks and would look to take advantage of attractive entry points; we believe this is one of those opportunities.”

Olson believes that domestic growth would continue to slow, as the company gradually approached a saturation point. In fact, Netflix is expected to “pursue best opportunity” by migrating its marketing spend to the international markets where the current penetration is still low.

Related Link: Netflix Investors: Subscriber Growth Is Overrated, Pay Attention To Price Elasticity Instead!

In the longer term, Olson expects international penetration of broadband subscriptions to grow to 10 percent by 2020 from the current 3-6 percent.

Although concerns regarding the competitive landscape seem to have increased in recent weeks, Olson believes that there has actually not been much change.

“Aggressive competitors remain in the space and we expect they will look to spend more on content, driving content costs higher, as has been the case for the past 5 years,” according to the Piper Jaffray report.

Olson expects the surge in growth in the online video market growth would be sufficient to support a number of key players in the space.