Goldman Misses on Netflix, Credit Suisse Bullish Now

Goldman Sachs may have some of the smartest analysts on Wall Street, but they missed badly on their predictions about Netflix's prospects back in March. Then again, they surely weren't the only ones and how can you fault them. Who knew a price increase would affect subscriber counts and a major content deal would apparently collapse?

But, it is interesting to look back at a Goldman report in March as an example of just how volatile the world of online video is as companies seek viable and sustainable revenue models. Netflix this summer obviously thought a price increase would be necessary if, for no other reason, than to keep up with its rising content costs.

In a March 14 report, Goldman upgraded its opinion on Netflix's stock to "buy" from "neutral" and projected the price would rise from about $210 then to $300.

It was trading at around $130 Wednesday.

On Wednesday, Credit Suisse brought back some bullishness with a $240 price target for the company, suggesting that Netflix would add between 4.5 million and 5.5 million paying subscribers for its streaming-only service annually from 2012-16, a startling number in the roiling landscape.



(Credit Suisse also projects significant revenues to come from international expansion.)

Goldman was optimistic in the spring because it felt investors had "overreacted" to heightened "signs of competition," which had been "underwhelming." Also, even if the competitive field started to fill up, Goldman believed there would be room for multiple players, partly because of soaring consumer interest in online streaming -- Goldman cited figures showing among 18-29 year-olds, the percentage viewing streaming media went from 23% to 50%.

Needless to say, Goldman and no one else foresaw Netflix creating the separate DVD-by-mail operation under a Qwikster brand. Credit Suisse expects it to lose subscribers at a rate of about 4% annually through 2016.

Goldman did not envision Amazon posing much of an immediate challenge to Netflix with its "Prime" streaming service, wondering if Amazon would be aggressive in acquiring top-tier content. That looks to have been off-base. In July, Amazon reached a deal with CBS similar to what Netflix has, allowing it to stream 2,000 episodes of its shows. This week, it landed an arrangement for a slew of Twentieth Century Fox library content in film and TV (the Los Angeles Times says Netflix already has much of it).

Netflix has a new deal with DreamWorks Animation, which comes after negotiations to re-up with Starz on an arrangement that would include Sony and Disney films appears to have been shelved.

What happens next offers an intriguing plot line. Goldman did say Facebook could become a Netflix "frenemy." It may be right on that one.

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