Citi reiterates "buy" rating on Netflix, shares rise

Wed Oct 3, 2012 10:43am EDT

A screen grab shows the access to Netflix online, as displayed on a television screen, in Encinitas, California July 25, 2011. REUTERS/Mike Blake

A screen grab shows the access to Netflix online, as displayed on a television screen, in Encinitas, California July 25, 2011.

Credit: Reuters/Mike Blake

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(Reuters) - Citi Investment Research stood by its "buy" rating on Netflix Inc despite several risks surrounding the online streaming video company's growth prospects.

Shares of the company rose 7 percent to $60.55 in morning trade on the Nasdaq.

"Netflix remains one of the most controversial stocks we cover," Citi analyst Mark Mahaney said in a research note to clients. "It's our 'screaming' buy -- we say 'buy,' people scream."

Mahaney said Citi recently conducted a consumer survey that showed overall customer satisfaction with Netflix had begun to improve for the first time since last summer's problems and subscriber attrition had slowed.

The analyst said risks that could hamper the company's growth include content acquisition costs, increased competition and uncertainty regarding international investments.

The company's credibility took a hit last year when a price-hike and plan to hive off its DVD business -- quickly abandoned -- sparked cancellations by angry customers.

"In terms of online video destinations, Netflix's competitive position continues to rise, although YouTube and Amazon are also showing gains," Mahaney said.

He also said the stock was very reasonably valued.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Saumyadeb Chakrabarty)

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