USB Piper Keeps 'Outperform' on NetFlix

Analyst Safa Rashtchy expects an earnings upside for the online DVD rental company

USB Piper reiterates its outperform rating on NetFlix (NFLX ).

NetFlix says it ended the fourth quarter with about 857,000 total subscribers, 93% of which were paying, and says it will report better than expected fourth quarter churn.

Analyst Safa Rashtchy says NetFlix's total subscriptions showed 88% year over year growth. He thinks a push towards a lower churn will help ease concerns regarding the long-term sustainability of the company's subscription model. Now that the potential revenue range for the fourth quarter is apparent, the focus will shift from the number of acquired subscriptions to bottom-line expansion.

Rashtchy says the key metric to drive profitability is the company's subscriber acquisition cost (SAC), which he estimates to be $36, in the middle of the guidance range of $34 to $38. Based on a lower churn, and his $36 subscriber acquisition cost estimate, Rashtchy sees earnings per share upside of one cents to three cents. He has a $20 target.

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