Netflix stock surged 11% Monday. (Paul Sakuma )
Netflix Inc.'s beleaguered stock got a boost Monday after an analyst said Amazon.com is much less of a threat in the subscription video business than many had thought.
Shares of Netflix were up 11% shortly before the market closed Monday. If the surge holds, that would be its biggest daily rise since January. Its top price of $74.09 was the highest the stock has traded at since late July.
Morgan Stanley analyst Scott Devitt upgraded Netflix stock based primarily on his conclusion that "Amazon.com is not a direct threat to Netflix's U.S. business."
The retail giant last year began offering streaming movies and television as part of its "Prime" subscription, which also provides unlimited two-day shipping on many items for $79 per year. Many, including Netflix chief executive Reed Hastings in an earlier email sent to shareholders, had suspected Amazon was preparing to "decouple" its video offering in order to more directly challenge Netflix.
But Devitt said it appears now that Amazon is in fact investing just enough to make its Kindle Fire tablet attractive with an inferior but still attractive group of free video. "Prime Instant Video is all about value investing," he noted.
Offering good content at low prices and more incentives for consumers to buy a Kindle Fire, Devitt added, will allow the company to sell-through additional digital media products..
In order to compete directly with Netflix, Devitt wrote, Amazon would need to invest another $1 billion to $1.2 billion in content.
Meanwhile, Devitt added that Netflix has shown more "discipline" than expected in its own content spending. "We were wrong about content costs rising out of control," he noted. Recently, Netflix allowed its exclusive deal for Sony Pictures and Walt Disney Studios content to become non-exclusive rather than paying a substantially increased fee to premium cable channel Starz.
While it continues to face intense competition overseas, particularly in Great Britain, Devitt said Netflix has big opportunities in the U.S. if it can decrease cancellations through compelling original series and eventually raise its $8 monthly price.
Netflix stock has been on a downward trajectory for most of 2012 after reaching $129.25 in February.
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