Analyst Notes and Streaming-to-TV for Netflix

Netflix (NFLX) today unveiled a new set-top box to be produced by privately held Roku Inc. that will allow subscribers to stream an unlimited number of movies and television shows directly to televisions. The device costs $99. The video content is free to anyone with a Netflix subscription of $8.99 a month or more. Most of the video content will consist of older material, rather than new releases.

The obvious comparison here is with Apple’s (AAPL) Apple TV box, which costs more, requires paying for movies downloaded from iTunes, but also offers more functionality, like the ability to stream personal music and photo content to your television. Older movies for free? Newer movies for a fee? It’s an interesting choice.

Meanwhile, Lehman’s Douglas Anmuth this morning raised his rating on Netflix to Overweight from Equal Weight, and increased his price target on the stock to $37 from $31. In raising his rating, Anmuth cited continued strong trends for subscriber acquisition costs, subscriber adds and churn. He also noted that the added costs of its digital service “masks the underlying health of the core business.” In his note, Anmuth also said NFLX “could announce a digital partner” around the company’s May 28 investor day; he says that “a gaming console or major integrated device announcement would be a positive catalyst for the shares.” (Anmuth cites the Microsoft (MSFT) Xbox 360 as the most likely console partner for the company.) Anmuth also notes that the company has $150 million stock repurchase authorization in place, and that short interest in the stock is 20%-30% of the float, both factors which should support the stock.

Brian Pitz and Brian Fitzgerald, analysts at Bank of America, maintained their Neutral rating on the stock this morning. In a research note, say other deals are likely, and specifically mention the possibility of a partnership with Microsoft’s Xbox Live online service. But they also note that “gross margins are currently being impacted by digital content acquisition costs.”

Several other related items. Atheros (ATHR) issued a release to point out that it provided the WiFi chips included in the new Roku box. And Sterne Agee analyst Arvind Bhatia writes that the new Netflix/Roku box should not have any near-term impact on Blockbuster (BBI).

Comments

[Brewer]

Apple TV lets you stream any content you want from your computer, actually. But it doesn't connect to Netflix servers. (All that is hosted in Windoze media format.)

There are a LOT of free things you can watch with Apple TV, including video podcasts (many free ones from big names in fact) any YouTube videos, etc...

It's more about Internet content and content you encode or buy whereas the Netflix box is tied to your subscription, is useless without it, etc...

It could help Netflix by being a pull factor to help them keep their churn rates down. It's really no competition for Apple TV.