Why Netflix Shares Jumped

Updated

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of home-entertainment provider Netflix (NAS: NFLX) spiked as much as 12% after Morgan Stanley upgraded the stock to "overweight" from "equal weight."

So what: Analyst Scott Devitt said the red-envelope mailer is not facing a direct threat from Amazon.com (NAS: AMZN) because the online retailer is unlikely to offer a stand-alone product that would adequately compete with Netflix's streaming catalog. Amazon Prime offers the streaming service as part of a bundled package, and Devitt estimated that Amazon would have to spend $1.2 billion more to match Netflix's content. Devitt also said his earlier concerns about content costs outpacing revenue were overblown.


Now what: Netflix hit its highest level since July 24 on Devitt's upgrade, but investors may want to control their excitement. The streaming champion still has a ways to go to dig itself out of the weeds and prove the value of its international expansion. Analysts are predicting no profits this year, and an EPS of just 91 cents in 2013 so shares look dearly priced at $73. Even at its peak last year, EPS never reached $5, so investors are still expecting growth even from its pre-crash heights.

For more information on Netflix, including its opportunities and risks as well key areas to watch, pick up a copy of our brand new special free report, which comes with a year's worth of free updates as a bonus. Just click right hereto get your copy now.

We also offer a similar report for Amazon, which you can access here.

The article Why Netflix Shares Jumped originally appeared on Fool.com.

Fool contributor Jeremy Bowman holds no positions in the companies in this article. The Motley Fool owns shares of Amazon.com and Netflix. Motley Fool newsletter services have recommended buying shares of Netflix and Amazon.com, as well as creating a bear put ladder position in Netflix. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Advertisement