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JANUARY 16, 2003

Advice from Standard and Poors
WORD ON THE STREET

USB Piper Raises NetFlix Outlook
Analyst Safa Rashtchy thinks the online movie rental company is undervalued, and is in the early stage of a huge market opportunity

 
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USB Piper raised its estimates on NetFlix (NFLX ).


The online DVD rental company posted a two cents fourth quarter loss (pro forma). Analyst Safa Rashtchy says solid results demonstrate the company's leverage in increasing its free cash flow and EBITDA with lower subscriber acquisition costs and churn rate. He notes third quarter subscriber acquisition costs totaled $33.31, beating his $36 estimate, and providing the bulk of the boost to profitability.

Rashtchy thinks NetFlix is in the early stage of a huge market opportunity in the subscription entertainment vertical. He says NetFlix is undervalued given the growth rate that is well above average. He has a $20 target. Rashtchy narrowed his 14 cents 2003 loss estimate to a 10 cents loss; he also raised the $242.6 million revenue estimate to $245.1 million. He is keeping his outperform rating.




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