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‘Originals’ seen lifting Netflix profits—for now

Althea Chang
Big Data Download
‘Originals’ seen lifting Netflix profits—for now

Emmy-nominated original series from Netflix (NFLX) are drawing new subscribers and could mean better-than-expected earnings from the streaming video and DVD rental site, according to one analyst.

Two Netflix shows—the drama "House of Cards" and the comedy "Arrested Development"—received Emmy Award nominations on Thursday, marking the first time online-only content has been nominated for TV awards. Those programs, and others dubbed Netflix "originals," aren't actually owned by Netflix; the company simply has the rights to display the shows, Wedbush analyst Michael Pachter noted.

Regardless, the site's original content convinced 12.4 percent of online survey respondents to join Netflix and convinced 7.8 percent not to cancel their subscriptions, according to Wedbush Morgan analysts, who surveyed 1,000 domestic subscribers.

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Wedbush predicted that those additional subscribers will contribute to earnings that exceed consensus estimates of 40 cents per share.

Despite a positive outlook on second-quarter earnings at Netflix, however, Wedbush has a negative outlook on the stock for the next 12 months. Wedbush has a $65 price target on the stock, citing the limitation the company's low pricing model places on profitability, especially given its recent growth.

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"Netflix can be a high-growth, low-profit company, or it can be a low-growth, high-profit company. We do not believe that there is room for a balance between the two, and believe that investors are overvaluing Netflix’s unprofitable growth," Wedbush said in a recent research report.

"I think Netflix actually got it right at $7.99 a month" for streaming service, Pachter said. “I think people think they’re getting great value for that, but it tells you that [Netflix has] no pricing leverage," Pachter told "Big Data Download."

About 80 percent of those surveyed by Wedbush said they think they’re either paying the right price or too much for Netflix, Pachter said.

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