Netflix: Hulu Plus Means Big Trouble, Or, Well, Maybe It Doesn’t

There sure is some dividend opinion on the Street about how the unveiling of Hulu Plus could affect Netflix (NFLX). In case you missed it, Hulu yesterday said it will launch a $9.99 a month pay service with a much broader collection of TV episodes than what it available on Hulu’s free service. Netflix, of course, has been seeing impressive subscriber growth, thanks in no small measure to user enthusiasm for its streaming� video service. The question on the Street is whether or not Hulu Plus is going to eat into the Netflix subscriber base.

Here’s a look at what the bulls and bears on NFLX are saying about the issue this morning:

It’s not an issue!:

• Eric Wold, Merriman Curhan Ford: He contends there is no real competitive risk from Hulu Plus, noting that it really would only appeal to Netflix customers who stream only TV shows, and don’t make use of the DVD portion of their subscriptions, and watch TV shows, but not movies.
• Michael Olsen, Piper Jaffray: “Given this is one of the first internet video subscription services with strong content and device partnerships, it will no doubt be perceived by some as competitive to Netflix Watch Instantly,” he writes. “For Netflix subscribers solely focused on TV, the Hulu service may be an alternative, but we believe the services are complementary: Hulu Plus for TV and Netflix for movies. We believe Hulu’s announcement may accelerate the consumer transition to internet-delivered video and push some consumers to question the value of cable/satellite subscriptions.” He keeps his Overweight rating and $140 price target.
• Steven Frankel, Brigantine Advisors: “We do not believe Hulu Plus is a Netflix killer,” he writes. “The inclusion of commercials in the paid service may turn-off some consumers. Netflix�s Watch Instantly does not have as many TV shows and doesn�t carry the current season. However, the service includes access to many popular shows including Lost, Desperate Housewives, and 24 as well as cable fare not available on Hulu, such as Dexter and Weeds. Watch Instantly also includes movies and the Netflix subscriber gets the Watch Instantly content as well as full access to the complete Netflix DVD library for as low as $8.99/mo.” Keeps a Buy rating and $136 target.
• Justin Patternson, Morgan Keegan: He finds little to worry about, and keeps his Outperform rating. “Netflix still offers far more content (DVDs + streaming movies) and its entry level plan ($8.99) is less expensive than Hulu Plus. Worst case, we expect the services to be complements rather than direct substitutes given the minimal overlap.”

It’s a big issue!:

• Daniel Ernst, Hudson Square Research: He downgraded the stock today to Hold from Sell. “We believe yesterday�s Hulu Plus announcement combined with the recent announcement of Google TV demonstrates that Netflix will likely face increasingly digital video competition,” he writes. “While we expect that Netflix will grow its subscriber base 37% in 2010, we forecast that growth rate will slow to 12% in 2011.” He sets a price target of $78, well below the current level, noting that the stock as of yesterday’s close traded at 44.8x 2010 estimates, versus 18x for consumer technology stock peers.
• Douglas Anmuth, Barclays Capital: “While we do not expect Hulu Plus to materially impact Netflix subscriber growth, we believe it is the first credible competitive subscription offering and we think it can win some subscribers that are heavily focused on TV content,” he writes. “Hulu Plus’ early distribution to the TV is also better than we anticipated.” He maintains his Equal Weight rating and $91 target.
• George Askew, Stifel Nicolas: He likewise keeps his Hold rating on the stock. “We believe many recent Netflix subscribers primarily use only the streaming service, and those subscribers may view the Hulu offering as a substitute for Netflix, potentially impacting Netflix� subscriber growth rate,” he writes. Askew keeps his Hold rating on the stock.

So which side is right? Today, the market is leaning toward the bears. NFLX is down 97 cents, to $111.61.