THE SPARK: Analyst John Blackledge upgraded Los Gatos, Calif.-based Netflix to "Outperform" from "Neutral" and said he does not expect a material effect on Netflix from Amazon's new movie streaming service, which it offers to its premium members who pay $79 a year for free or low-cost shipping on their orders.
THE BACKGROUND: The announcement from Amazon.com Inc., along with news that Warner Bros. was testing out a service to offer movies through Facebook, proved a drag on Netflix shares recently. The company made its name renting movies by mail and sending them out in those ubiquitous red envelopes. But more recently it's been focused on its streaming service, which lets people watch movies and TV shows over an Internet connection.
THE ANALYSIS: Blackledge said he doesn't see the Warner Bros. Facebook service as a material competition to Netflix. First, it's just a test with one movie. Second, the movies will be rented on an a la carte basis, rather than a subscription model like Netflix's. This business model, the analyst noted, "has not proven to be an effective competitor" to Netflix.
"(Netflix) has coped well with competing a la carte rental services for several years at this point, namely, Apple, the cable and satellite companies ... (Amazon's) a la carte service, etc.," Blackledge wrote.
Based on a Credit Suisse survey, the analyst also said that Amazon's new streaming service is unlikely to get Netflix users to cancel their subscriptions. Blackledge raised his target price to $280 from $180 and said Netflix is likely looking to expand further into international markets in the second half of this year and beyond.
