Netflix, Inc. (NFLX) has inked a deal with The Walt Disney Company (DIS) to develop and produce a number of original shows featuring Marvel Super Heroes. Marvel Studios confirmed this story based on its press release last November 7.
This is another great news for Netflix investors who firmly believes in the company's momentum growth. The deal gives Netflix the opportunity to further enhance its original content strategy. After the success of its original shows like House of Cards, Arrested Development, and Orange is the new Black, Netflix has the chance to reach out to a different demographic by producing action TV series starring Marvel's heroes.
What's In The Deal
The Walt Disney Company is giving Netflix a multi-year deal as exclusive distributor of four live-action TV mini-series, one starring Marvel's Daredevil, and the three shows will feature Jessica Jones, Luke Cage, and Iron Fist.
The TV series will start broadcasting in 2015 and the storylines will unfold over several years. Netflix's subscribers will get the chance to immerse themselves in the dark world of heroes and villains. Netflix has already committed itself to four serialized shows with thirteen episodes each.
This deal is a great follow-up to Netflix's incredible movie distribution deal, which gave it exclusive U.S. subscription TV broadcast rights for first-run, live and animated motives from The Walt Disney Company and all its subsidiaries.
Marvel's big push towards pay-television will definitely benefit Netflix's future profitability. The franchise of Marvel heroes has proven their appeal to both U.S. and foreign viewers. Netflix has around 40 million subscribers around the globe and many of them are most probably fans of Daredevil, Jessica Jones, Iron Fist, or Luke Cage.
The stock market is betting big on the momentous growth of Netflix. Its stock price, $337.91 is already trading with a stratospheric P/E ratio of 284.22. Some market observers are warning of a mighty crash for Netflix. All the negative articles are just futile because most Netflix investors are still full of the euphoria over the better-than-expected results that the company posted last October 21.
The company's stock has skyrocketed over the last 12 months and yet most investors are still predicting a higher fair share value. Compared to November 11, 2012, Netflix has increased its stock value by +245.32 - an incredible 264.95% improvement.
Netflix is already bigger than HBO in the U.S. - it has 31.2 million subscribers as of 3rd Quarter of 2013. It's a mighty achievement for a company once known for just mailing DVD movies. The recent quarterly report showed Netflix added 1.2 million new customers in the U.S., and 1.44 new subscribers from overseas markets where Netflix operates.
The report revealed that the company quadrupled its 3rd Quarter net income from last year's $8 million to $32 million this year. The company also earned a net income of $29.47 million for 2nd Quarter of 2013. Netflix is also predicting a net income of $37 million for the 4th quarter of 2013 and around 2.1 million new subscribers.
The Sky is the Limit?
Like what I mentioned already, the high P/E ratio of Netflix is already causing concern to some people. Reed Hastings, Netflix CEO, raised his concern about the rapid rise of this company's share price this year. Hastings knows how fickle the stock market can be and he reminded investors to be more prudent.
He said all that matters most to him is the continuous increase in Netflix's subscriber base. He explained that "Despite the huge swings in our stock price since our 2002 IPO ($8 to 3 to $8 to $300 to $55 to $330), we've continued to grow our membership every year fairly steadily. We do our best to ignore the volatility in our stock."
If the CEO of Netflix is raising issues with the market's volatile treatment of the company's stock price, wouldn't it be sensible now for investors to stop boosting the price of Netflix? Let the stock reach its cap price or around $340 and let it gradually slide down to more reasonable levels?
In spite of Hastings' misgivings, some bullish experts are still shouting a target $420 price for Netflix. Now with the new deal from Marvel Studious signed, chances are that investors will get more emboldened to keep on propping up Netflix's high P/E ratio. If the company keeps winning more exclusive TV distribution like this, it may mean the sky is the limit for Netflix.
Netflix is clearly overvalued by hyperactive momentum investors. They can't help themselves especially when Netflix keeps getting exclusive deals that fortifies its increasingly dominant position over cable TV operators. I cannot honestly recommend a BUY for Netflix. A SELL might be more appealing but in the meantime, a HOLD is a smart move for the next few months. Netflix bulls might just bring it up to $400 - and when they do, SELL immediately!