Does Netflix Have an Ace Up its Sleeve?

The news for Netflix (NASDAQ:NFLX) has been overwhelmingly positive following the 2011 debacle over its streaming services/DVD subscriptions changes. Customers chafed at the idea, and analysts expected the worst, which more or less happened. Some 18 months later, Netflix stock has gone from $63 to $189. Short term gains are exceptional, too: it began 2013 at $92. If more well-hyped original series are in the cards for Netflix, there is a possibility more growth is ahead.

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The Catalysts for Netflix’s Rise

When Netflix mouthpieces announced they were separating DVD subscriptions from streaming services for pricing concerns, they fumbled the delivery and the timing. Yet the company has shown resilience. Following a shutdown of steaming services on Christmas Eve 2012, setbacks are few and far between. In fact, Pacific Crest analyst AndyHargreaves thinks it’s on its way to $225. This announcement juiced the stock over 5 percent earlier this week.

Two factors are behind the idea the stock is still undervalued:

  1. Netflix subscription numbers are increasing and
  2. Profit margins are better than ever

Is There Another “House of Cards” to Come?

To be convinced there was more growth in Netflix’s future, I would have to see something along the lines of David Fincher’s “House of Cards,” an unmitigated success story for a company never before invested in original content. In fact, the concept itself is new. Could anyone imagine Blockbuster (before its demise) coming out with a new Scorsese production? Netflix’s innovative moves in the industry have impressed.

CEO Reed Hasting hinted there is more to come. The high-profile stars and director of “House of Cards” go a long way towards getting subscribers of other big-name productions from HBO and Showtime. The David Fincher-helmed series is Netflix’s most streamed show. More original content of this caliber would draw new subscribers without hesitation. Hastings described the “House of Cards” as “a down payment” on the company’s future. It looks like a good investment at a time when Amazon (NASDAQ:AMZN) has increased its presence in the streaming business.

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Can Amazon Compete in the Short Term?

Amazon experienced outages this past Good Friday that reminded observers of the Netflix breakdown on Christmas Eve 2012. While subscriptions could depart Amazon en route to Netflix, CEO Reed Hastings reminded shareholders of Amazon’s deep pockets (it remains the largest online retailer).

Still, this short-term speedbump could mean good things for Netflix as it continues jockeying for position with Hulu and industry powerhouse Amazon. Whether it is enough for the long term remains to be seen.

Conclusion

Companies everywhere feel the power of the streaming industry and, for now, Netflix is winning on all fronts. Still, it would take another original series on the level of “House of Cards” to push it to the next level. Until then, WAIT AND SEE.

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