RBC's Mark Mahaney: Netflix May Have More Cost Leverage When It Comes To Content Than People Realize

Netflix, Inc. (NASDAQ: NFLX) released the third season of its widely acclaimed series "House of Cards" on Friday. RBC Capital's Mark Mahaney, who has a price target of $550 on the stock, was on CNBC recently to discuss how this will impact the company's subscriber growth and stock price. Mahaney also opined on whether producing original content will increase Netflix's spending significantly.

Impact Of House Of Cards 3

"Probably this doesn't have a dramatic impact on near-term subscriber numbers, but original content is what caused those subscribers to inflect up materially in 2013 and the company is on record saying that this is going to be a much bigger content year," Mahaney said. "Not only ‘House of Cards 3', ‘Orange Is The New Black 3', but a couple of new original shows including ‘Daredevil' that'll come out this year that should boost subs this year close to last year levels and maybe a little bit higher.

"Content matters, new original content matters, helps drive subs its good for Netflix."

Related Link: 7 Brands Banking On 'House Of Cards' And Netflix

‘Flywheel' Working For The Company

When asked if the proposed increase in original content this year significantly increase Netflix's spending and reduce margins, Mahaney replied, "No, it's hard to know that externally, but I'll make two points. This is a flywheels company so the more subs they get, the more revenue they get, the more money with which to buy content which will get more subs, so there's a nice flywheel that's working for them, has for the last couple of years."

"We think it'll continue, too, but secondly they made a very interesting comment on the last earnings call saying that their cost for original content previewing hour were lower than the cost of licensed content."

"They essentially told Hollywood and the studios that we don't necessarily need your content, we can create our own more efficiently. They may actually have more cost leverage when it comes to content than people realize," Mahaney concluded.