Pacific Crest’s Andy Hargreaves this morning reiterates a Sector Perform rating on shares of Netflix (NFLX), writing that the company’s spending on content may become less onerous moving into next year, but that competition could still hurt the company.
Citing a “lack of availability of new movie content,” and Netflix’s determination to obtain original programming, suggest to him, “Netflix�s domestic profitability can begin to scale extremely well with incremental subscriber growth.”
However, “new low-cost or integrated streaming video offerings may be good enough for many consumers, which could limit Netflix�s potential long-term subscriber base,” he writes.
Online competitors are “unlikely to push spending levels higher” he thinks.
Netflix may spend $1.4 billion on domestic streaming content this year, and $1.8 billion in 2013.
Hargreaves notes that Amazon.com (AMZN) and Dish Network (DISH) will each probably spend much less than half a billion dollars in 2012 and probably won’t be able to afford to expand that much in 2013.
The biggest threat is really Comcast (CMCSA), he writes, which last month debuted a new streaming service, “Streampix.”
If Comcast, with its enormous cash flow, gets more aggressive in its roll-out of Streampix, that could be a worry for Netflix:
Comcast (CCW, $25.53, not covered) generated $9.0 billion of free cash flow in 2011 and recently launched Xfinity Streampix, which appears likely to compete with Netflix for con- tent. Of all the potential competitors, Comcast appears the most capable of bidding for content in a way that could drive Netflix�s required spending up faster than we anticipate [�] If Comcast decides to reach outside of its network with a stand-alone version of Streampix, which is very possible, it could cause us to change our views on Comcast�s potential impact to Netflix�s content costs.
Netflix shares are down 62 cents, or 0.6%, at $110.11.
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