Netflix Headed for $202

Posted by Ian Cooper - Tuesday, November 23rd, 2010

The editors of Options Trading Pit have been calling for Netflix to run above $200 for months... sitting on fat gains on the run up.

As we said in September 2010:

"It looks like Netflix just broke above the channel... and could be headed higher. And why not? What competition can stand in this giant's way at this time.

Considering future growth, an $8 billion market cap is nothing. We could see $10... even $20 billion when all is said and done with this stock. Plus, with the momentum crowd jumping in... and quickly churning that float, there's no telling how high this can run.

On each move, the 200 calls are gaining momentum, too. While that's deep out of the money, let's take a chance with it for December 2010 expiration. While we could see a repeat of gains from our $140 to $150 run, nothing is a guarantee.

Only buy maybe 1-3 contracts here. Do not risk the house. This is extremely high risk... extremely. But I'd rather not be kicking myself when this puppy hits $180 and we're still on the sidelines. If you're game, and understand the very high risk here, pick up the December 2010 NFLX 200 calls (NFLX101218C00200000 ) at or near $5.75."

 

From The Wall Street Journal:

"Piper Jaffray analysts raised their target on Netflix shares to $202 from $180, following the pricing shakeup the DVD-by-mail and streaming video service announced recently. While Piper Jaffray analysts note that they expected the all-important “average revenue per user” metric [ARPU] to fall in the long term as customers switch to less expensive streaming services, they say in the near-term the ARPU numbers will be bolstered by the less-publicized price increase Netflix slapped on its traditional DVD-by-mail service.

Net-net, we believe the relative impact of subs shifting to streaming-only will not outweigh the increasing ARPU for subs continuing to use DVD-by-mail in [calendar year 2011]. Long term, we expect more attractive streaming-only pricing ($7.99/mo vs. $9.99/mo with one DVD) will cause a continued migration to streaming-only, which will lead to continued decline in ARPU, but increasing profitability per sub.

Piper Jaffray has an “overweight” rating on the shares, which jumped about 9% on Monday but are giving some of that back today. Year to date, the shares are up a monster 238%, according to Thomson Reuters data."

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