NEW YORK – Netflix (NASDAQ:NFLX) has stepped up plans to seek tie-ups with pay-TV operators. The plan would link the disruptor with what has increasingly become an industry in decline. As part of this strategy Netflix recently inked an agreement with Virgin Media (FTSE:VMED), which was later acquired by Liberty Global (NASDAQ:LBTYA). The agreement will allow Netflix’s app to be installed on TiVo’s set top box in the United Kingdom, giving subscribers access to Netflix’s streaming catalog.
The agreement is part of a broader strategy to add 60 to 90 million new Netflix subscribers in coming years. As part of this strategy, the company is courting major U.S. cable operators in an effort to get them to install the Netflix app in set-top boxes.
There is some reason to believe this strategy might work, according to the company’s most recent quarterly results Netflix has overtaken HBO (NYSE:CBS) with more than 31 million monthly subscribers compared to HBO’s 29 million subscribers. Given their strength, speculation that Netflix will sign a deal with either Comcast (NASDAQ:CMCSA) or Time Warner Cable (NYSE:TWC) has picked up in recent week and it would appear that the companies are trying to figure out how to structure the deals.
Analysts believe that If Comcast agrees to install Netflix’s app, the partnership will help Netflix to sustain their subscriber growth as Comcast has more than 20 million pay-TV subscribers and more than 18 million broadband customers, and it is assumed that only 40 percent of Comcast subscribers currently subscribe to Netflix.
If Netflix is going to achieve their long-term goal of 60 to 90 million subscribers, the company must find ways to reach out to network operators. If the company cannot strike a deal with Comcast or Time Warner another option might be mobile operators as it would appear that they might be well positioned to supplant traditional pay-TV operators as the deliver option of choice.
If a deal is reached, Netflix’s share price could soar. Currently, Netflix has a trailing Price to Equity (P/E) of 408.51 and a forward P/E of 81.80, which depicts that the company has a high growth potential in the future. With expected earnings per share of $ 3.41 for fiscal year 2014, the fundamentals and valuation make the stock relatively attractive for investors.
Share of Netflix closed on Friday at $ 369.27.