3 Predictions for Netflix in 2013


It's funny how a market darling can become a laughingstock and bounce back. Netflix , believe it or not, has been one of the market's hottest stocks lately.

Shares of the video service that investors seemingly discarded late last year have soared nearly 77% since bottoming out in August. Most of those gains have happened in the past two months. Even for all of 2012, Netflix's 35% return places it firmly in the camp of market beaters.

What will 2013 bring? Let's take a look at five of my predictions.

1. Netflix won't get bought out
Carl Icahn's move to acquire a nearly 10% stake in Netflix last month stirred up buyout chatter again. Will Amazon.com finally live up to years of speculation by acquiring the company that's reportedly generating 20 times the amount of primetime video streaming traffic than the leading e-tailer?

What about Microsoft ? It became a popular suitor for speculators after Netflix CEO Reed Hastings surprisingly stepped down from the software giant's board of directors. Why would he voluntarily leave the board of one of the world's most prolific companies? It was easy to imagine that Microsoft would cut another big check on an acquisition -- one that would help its push into the streaming-friendly tablets and smartphones that are eating into its desktop operating-system business.

Well, it's hard to picture Netflix trying to sell itself off on the cheap now. The stock has momentum. Its video service continues to pad its subscriber count. If a company didn't come after Netflix when it was hitting rock bottom this summer, it's unlikely to chase the company higher at this point.

2. Netflix will begin selling pay-per-view streams
Netflix has a problem. It's glued to the $7.99-a-month price, and it's shedding DVD-based accounts that pay more. Given the limited number of households with Wi-Fi and Web-based streaming appliances in place, growing past its first 25 million homes won't be as easy as the company makes it out to be.

In an effort to stoke the mother of all bullish catalysts -- the potential to milk more revenue out of its subscriber base -- Netflix will need to do what Amazon.com and now Coinstar's Redbox are about to do in offering new releases as premium rentals.

It's easy to see why Netflix is avoiding this move. Studios with content on their smorgasbord will want their content presented this way. However, if Netflix at least initially limits piecemeal rentals to movies in their first month or so of retail release, it will be a win-win for Hollywood and Netflix.

Netflix already has the credit cards on file. Consumers already have seamless access to Netflix's library through their video-game consoles, Blu-ray players, DVRs, and smart televisions.

Netflix can argue that piecemeal rentals haven't helped Amazon close the gap with Netflix, but that isn't the point. As the model stands now, the upside is capped at $7.99 a month per subscriber. That has to change.

3. Netflix will close 2013 in the triple digits
It's highly unlikely that Netflix will revisit its 2011 summertime highs above $300. It will take years for that to happen, and a lot of things still have to go right. However, as Netflix closes in on $100 now, the fundamentals are in place for it to continue its ascent in 2013.

There are more positives than you might think. For starters, sfter this year's foray into original programming with February's Lilyhammer, Netflix is back with at least five shows that will be initially exclusive to the streaming service. Some of the shows may be overlooked, but you know that won't happen with House of Cards and the revival of Arrested Development.

There will also be more content deals. Investors rallied behind Netflix's costly deal for marquee Disney movies last month, sending the stock 14% higher when the partnership was announced. Amazon hasn't been able to slow Netflix down, and there's little reason to believe that Redbox Instant will be any different.

Netflix won't be cutting too many nine-figure deals, but it won't have to. As production studios realize that being on Netflix is the best way to gain exposure for television shows and revenue for movies, the negotiating leverage will belong to Hastings.

Cynics point to Netflix's sky-high earnings multiple, but this is the handiwork of losses being incurred as the company pushes overseas. Its subscriber base will continue to grow, both here and abroad, and the scalable nature of the model will begin to reverse the current margin pinching.

So that's it. Three predictions for Netflix in 2013. Feel free to disagree or add your own in the comment box below.

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The article 3 Predictions for Netflix in 2013 originally appeared on Fool.com.

Longtime Fool contributor Rick Aristotle Munarriz owns shares of Netflix and Walt Disney. The Motley Fool owns shares of Amazon.com, Walt Disney, Microsoft, and Netflix. Motley Fool newsletter services recommend Amazon.com, Walt Disney, Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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