Boy, do I wish I held my Netflix stock!
The sad thing is that as I searched for growth opportunities, I ended up dumping Netflix, concerned about what the future might hold for the company. Now, I truly want to kick myself, but I won't beat myself up too bad. For years, there have been plenty of Netflix naysayers. Who knew that a sweeping recession would soon take hold and give Netflix some steam?
That's exactly what happened. With less money to spare on entertainment these days, many people are looking for low-cost ways to smile during hard times. What better way than to kick back in the comfort of your own home with some popcorn, cuddle up and view the latest DVD releases?
And millions are joining in on the fun. The company had a whopping 10 million subscribers as of February and its stock has shot up 50 percent this year already. At $50, the upside potential could be tied to its plans to invest in its on-demand service. When Netflix reports its results after the bell today, analysts polled by Thomson Reuters expect it to earn 31 cents per share on revenue of $391 million.
The stock was downgraded last week from "buy" to "hold" by Wedbush Morgan analyst Michael Patcher. "We expect Netflix to consistently outperform market expectations throughout 2009, but anticipate that out-sized earnings performance will embolden company management to make an even greater investment in the company's streaming initiative," he said.
Outperform is certainly not a term being used to describe rival Blockbuster (BBI), which is struggling to stay afloat.
Earlier this month, S&P cut Blockbuster's credit rating to "junk" status despite the fact that the company was able to conditionally rework its revolving and term loan agreement. But because there is a risk that these conditions may not be met, the company's auditors raised "substantial doubt" about Blockbuster's ability to continue.
In an attempt to boost revenue, Blockbuster and partner NCR expect to roll out 10,000 rental kiosks across the U.S. by 2010. CEO Jim Keyes said "We remain excited about DVD vending, and through our alliance with NCR, we are poised to participate in the category's growth."
But will Blockbuster's strategy work? Will consumers flock to kiosks rather than ordering online? I think I'll continue to wait for my red and white envelope in the mail.