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Why Netflix Is Surging While the Market Tanks

Netflix
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Netflix

As the markets plummeted Tuesday, Netflix was a rare bright spot in a sea of red — the subscription movie service finished Nasdaq trading up almost 8 percent .

Netflix bucked the broader market thanks to an upgrade from Goldman Sachs, which raised its rating from 'buy' to 'neutral,' and lifted its price target to $300. That's still a good $50 more than where it's trading now.

Today's move is all the more striking considering that just last week Facebook became a rival to Netflix, by partnering with Warner Brothers to stream movies on its site. But Goldman points out that Facebook poses far more competition to video-on-demand services like Amazon's. When it comes to a subscription service, the barriers to entry are far higher.

Goldman analyst Ingrid Chung says she believes that the nearly 20 percent sell-off in recent months is an overreaction to signs of competition, especially considering that subscriber growth has been better than expected. She expects the company to add as many as 4 million subscribers *per quarter* to its 20 million subscriber base. Other reasons for optimism about Netflix: 27 percent of US consumers now stream movies or TV shows, up from 16 percent a year ago, and International prospects for Netflix are strong.

And Chung's upgrade comes on the heels of new NPD Group research that show Netflix's remarkable reach. Between January and February Netflix had 61 percent of the number of digital movies downloaded or streamed online. The next biggest players are far behind — Comcast has just 8 percent market share, while Apple, DirecTV, and Time Warner Cable each have just 4 percent.

Meanwhile the parent of Netflix's DVD-rental rival, Redbox, part of Coinstar, also saw a lift today — now up about 1 percent. Redbox benefits from rival Blockbuster's downfall — its potential liquidation would certainly boost Redbox. But Coinstar's also benefiting from a new push to eliminate its 9.8 percent service fee by teaming up with retailers.

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