Netflix (NFLX) To Stay Range-Bound?

As of this writing, NFLX is trading at $67.35.  This morning three analysts (Susquehanna, BofA, Kaufman Bros.) all downgraded the stock on valuation.  Here is a quick snapshot from Credit Suisse when NFLX reported last quarter on Jan 28:


"Action/Event: NFLX reported better than expected 4Q09 earnings after the close, beating our estimates (as well as consensus) and prior company expectations. NFLX also introduced new 2010 guidance that was better than

we expected, as such, we raised our 2010 estimates. We raised our 2010 revenue estimate to $2.1 billion (vs. $2.02 billion previously), up 26% y/y and EPS to $2.47 (vs. $2.07 previously), up 25% y/y.

Investment Case: NFLX reported strong 4Q09 results with revenue of $445 million, up 24% year over year, in line with our estimate. Operating income in 4Q09 was $53 million, up 41% year over year (vs. our $44 million estimate), as lower cost of revenue drove operating income. EPS (GAAP) in 4Q09 was $0.56 (vs. $0.39 last year) and ahead of our $0.47 estimate.

Valuation: NFLX currently trades at 21 times P/E based on our 2010 estimates, about 2% above historical P/E multiple (since 2005). We believe investment in the streaming and int’l initiatives will keep margins in check and lead to decelerating earnings growth over the next few years."


I like the following butterfly spread:


- Buy to open 1x April $60 calls
- Sell to open 2x April $65 calls
- Buy to open 1x April $70 calls


As I stated in my previous posts, I believe market will remain in range-bound trading for several months to come.  As such, I am looking for setups that provide decent risk/reward.  I just filled the order for above butterfly for net debit of $1.10. 


Good luck!