Netflix shares gain premarket after upgrade at Macquarie Research

Shares of Netflix Inc. were upgraded to outperform from a neutral rating by analysts at Macquarie Research on Tuesday. The main reasons for the upgrade are the analysts' new preference for companies with subscription models rather than ad-driven, and scaled distribution with an international presence. Lead analyst Tim Nollen wrote that Netflix's improving revenue and earnings were also a driver for the upgrade. "We believe Netflix is taking several steps to improve this beyond the market's obsession with sub numbers to date," Nollen wrote. "A second round of price increases is now coming through, Netflix is expanding its distribution relationships with cable operators and telcos globally, international growth is taking off on a concerted strategy to develop local content offerings, and Netflix is beginning to work on ways to reduce password sharing, which could drive even more subscribers." Nollen also said Netflix remains far ahead of its peers, and Walt Disney Co.'s forthcoming streaming service, which won't launch until 2019, won't threaten Netflix. However, the streaming giant's negative free cash flow is still a risk, and he noted that the Federal Communication Commission's repeal of Obama-era net neutrality rules could also be a big risk if internet service providers decide to raise bandwidth prices. Netflix shares were up 1.5% in premarket trade on Tuesday and are up 55% in the trailing 12-month period, while the S&P 500 index is up more than 19% and the Dow Jones Industrial Average is up 25%.

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