Shares of Netflix Inc. (NFLX) surged 4.2% to close at $173.01 on Apr 11, 2013, after the company announced that its subscribers watched 4 billion hours of streaming over the last three months. The announcement was made on the company’s chief executive Reed Hastings’ personal Facebook (FB) page.
The move was widely anticipated after Netflix announced its intentions to use Facebook and Twitter to reveal material information to investors. The company also filed with Securities and Exchange Commission (“SEC”) to that effect.
Last year, Netflix stirred a controversy when its CEO used Facebook to reveal monthly subscriber details. Netflix was charged by SEC for violating disclosure norms. However, the increasing relevance and participation of the social media in corporate communications forced SEC to revise its disclosure rules.
SEC now allows companies to make corporate announcements over social media platforms, including Facebook and Twitter, by providing relevant web addresses through notifications on their company websites and press releases.
We believe that Netflix will gain (as evident from the share price movement) from the newly amended rules in the near term. The strengthening social integration with Facebook will help it win further investor confidence going forward.
The recent surge in viewership has been primarily driven by Netflix’s engaging content, in our view. We believe that more than anything else, Netflix’s superior content will be the ultimate deciding factor in the ongoing battle for online supremacy.
Netflix’s new and exclusive content offerings are its biggest assets, which set it apart from Hulu, HBO, Amazon (AMZN) as well as the newly-launched services from cable and media companies such as Comcast (CMCSK).
We believe that an improving paid subscriber base, international expansion, diversified content portfolio and a huge video library are the positives in the near term. Moreover, Netflix’s own content delivery network, Open Connect, connects its video library directly to Internet service providers, ensuring fast data transfer to enhance customer experience. This will further improve customer engagement going forward.
Currently, Netflix has a Zacks Rank #1 (Strong Buy).
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