Netflix and Chill: Analyst Says SVOD Wins Video Wars

Juenger initiates stock with ‘outperform,’ says SVOD the dominant model
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Sometimes controversial and always influential Sanford Bernstein media analyst Todd Juenger initiated coverage on Netflix Thursday with an “outperform” rating, adding that the subscription video on demand pioneer is the anchor in what will be the dominant model for video entertainment delivery.

Juenger has been a harsh critic of linear cable networks – he was the first to identify Viacom’s ratings woes and how short term SVOD deals led to long-term subscriber erosion. And with his note to clients on Thursday, he admitted that no matter what position he took on Netflix, he was in danger of alienating half his client base. But, he added that the evidence is too great. SVOD is quickly becoming the dominant vehicle for video delivery, offering low prices, scale, ease of use and flexibility. And Netflix, with 100 million global subscribers and counting, an $8 billion content budget and strong partnerships with distributors that have embedded the service in smartphone, set-top boxes and other equipment, is the anchor.    

“A wise investor once remarked to us: ‘If Jesus were a stock, he'd be Netflix. You either believe or you don't,’” Juenger wrote. “We think that analogy perfectly captures investor attitudes on this stock.”

Juenger isn't the first analyst to predict the demise of linear TV in favor of SVOD -- BTIG media analyst Rich Greenfield has been saying it for years.

Juenger went on to make the case for his position in the 55-page report, adding that despite arguments that Netflix is bleeding cash as it spends heavily on original content – which will probably continue for a while – that is missing the mark.

The analyst estimated that Netflix would reach 291 million subscriber worldwide by 2030, a number that doesn’t seem so outrageous when the 750 million homes outside the U.S. are taken into account. By 2030, Juenger’s forecast would amount to just one-third of total global pay TV households.  

Juenger wrote that he doesn’t expect Netflix’s potential to show up anytime soon in cash flow results, adding that Netflix’s strategy has been to aggressively acquire subscribers and spend what can be comfortably handled by cash flow and debt.

“In that sense, bearish investors who say 'Netflix isn't making any money' will probably be saying that for many years to come –while Netflix continues to widen its advantage in subs and content spend. Much like Amazon did in e-commerce (and that has worked out pretty well for Amazon investors),” Juenger wrote.

Netflix stock was up less than 1% ($1.17 each) to $145.56 in after hours trading Thursday.