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Future Netflix Pricing Moves Hold Key To Investor Decisions
- Netflix erroneously blamed pricing for its lower-than-expected subscriber growth, leading to a 25% drop in share price.
- Consumer research suggests Netflix could have successfully upped its monthly price to at least $8.99 and even $9.99 for both existing and new subscribers, significantly impacting profitability.
- More aggressive pricing could double near-term profitability.
- Netflix analysts and investors should encourage company management to give added focus to the pricing function and consider broader and steeper price increases.
- On a sales multiple basis, Netflix is reasonably priced when compared to other large-scale online media names.
- International subscriber growth, along with domestic price increases, will drive the bulk of the revenue growth going forward.
- Domestic subscriber growth will likely slow to a 10% CAGR, but pricing increases will drive sales growth.
- When combining international revenue at $15 billion and domestic at $10 billion, I estimate Netflix may grow revenue to $25 billion by 2019.
Netflix Off-Balance Sheet Obligations: Concerns Are Way Overblown
- Netflix's off-balance sheet obligations are actually future costs of revenue.
- There's a legitimate reason why they're off the balance sheet to begin with.
- Netflix has plenty of financial flexibility even if it overbids on content in certain years.
- NFLX is not suitable for Defensive Investors or Enterprising Investors following the ModernGraham approach.
- According to the ModernGraham valuation model, the company is significantly overvalued at the present time.
- The market is implying 74.66% earnings growth over the next 7-10 years, which is extremely high compared to the rate the company has seen in recent years.
- Netflix’s programming costs could be growing faster than its revenues.
- Netflix has already agreed to pay $2 million an episode for the NBC series The Blacklist.
- Companies with deeper pockets and leverage could create a bidding war for programming that Netflix can't win.
- Just because a stock falls in price doesn't mean its shares are cheaper.
- The relationship between net income and cash flow is paramount in assessing earnings quality.
- Let's tie these two concepts together with respect to Netflix and address its valuation.
- As Netflix continues to rapidly burn through cash, it will be forced to raise more by selling stock or borrowing. Either of these events is bad for shareholders.
- The company will eventually dig itself into a debt-hole that it cannot climb out of; bankruptcy is a definite possibility within a few years if this continues.
- Increasing competition, exponentially rising content costs, and non-existent customer loyalty and stickiness will limit Netflix’s growth potential.
- The safest and most profitable way to bet against Netflix is via out-of-the-money puts, which could increase in value by over 1,000% when the financial collapse occurs.
- NFLX has fundamental concerns.
- Those will likely impact the stock in the quarters that follow.
- But the stock also is bouncing off of longer term support.
Netflix: Negativity May Be Airing, But Don't Change The Channel - An Algorithmic Perspective
- Netflix has dropped a dramatic 21%-25%, following its "disappointing" Q3 earnings and Q4 guidance, both of which indicated low subscriber growth.
- Some analysts believe this spells trouble, citing not-so-speedy margin and revenue growth, compelling new competition, rising content costs, slow domestic growth, and unimpressive international results as further problems.
- While critical appraisals are understandable, Netflix continues to demonstrate positives: i.e., historically unexpected milestones and rebounds, global market leadership, strong channel identity, and dedicated production of new, original, niche-specific content.
- Further, Netflix's competitive resilience, diverse projects, net growth, expansion potential, and user-experience commitment, in tandem with present-day U.S. streaming- and cable-market climates, signal noteworthy future prospects, analysts and investors believe.
- I Know First's algorithm predicts a bullish forecast for Netflix in the 1-month and 3-month time frames.
Netflix Looking To 'Bloodlines' To Be Its Next 'House Of Cards'
- Netflix has seen great success with original content such as ‘House of Cards’ and ‘Orange Is The New Black,’ but has yet to find its next big hit.
- 'Bloodlines' could be the streaming service's next game-changer because of its strong cast and respected showrunners.
- While the company has many big time names attached to future programming, ‘Bloodlines’ gives it yet another award season contender.
- Netflix is pumping billions of dollars of new content into its pipeline for 2015 and beyond but it will take some time for those investments to pay dividends for investors.
- We wrote that Netflix has long-term potential just days before earnings, making it a buying opportunity.
- Netflix reported earnings the next week and the stock was hit 20%.
- Like Mark Cuban, we think it was a good time to buy.
Netflix: Subscriber Retention Issues Flagging The Trouble Ahead
- Subpar subscriber growth in the domestic market masked the deterioration underway in subscriber retention in international markets.
- If the trend persists for the next two quarters, investors will begin to re-price the international growth opportunity for Netflix.
- Investors pinning their hopes on profitability of the international segment should brace for a wild ride in the future.
Netflix: Mark Cuban Misses The Boat And Why Shares Are Still Unattractive, Expensive And Overrated
- Mark Cuban buys 50K shares of Netflix.
- Reasons why Netflix most likely won't be acquired.
- Netflix's latest earnings report shows investors why it cannot support its current sky-high valuation.
- Even after the earnings sell-off, shares of Netflix are still expensive and unattractive.
Netflix, Streaming Video On Demand Will Change TV Forever
- Netflix is well positioned as the streaming video on demand model works extremely well in the internet of things.
- However, competition, and the improving scale of competitors may challenge Netflix's ability to raise pricing. As a result, the industry will consolidate around a few applications that can replicate MCVPs.
- Standard multichannel video providers like Comcast, DirecTV and Verizon may focus more on content production and take on a role in which they distribute packages of SVOD applications.
- Given the high rate of penetration of SVOD, and the superior functionality, the business model should change quite considerably over the next five years.
Yesterday, 6:52 PM
- Netflix (NASDAQ:NFLX) has landed the rights to Unbreakable Kimmy Schmidt, a new Tina Fey/Robert Carlock comedy about a doomsday cult survivor living in NYC, for two seasons. The show's first season (13 episodes) arrives in March.
- The show, originally set to be aired by NBC, is the first one made by Fey and Carlock since 30 Rock. Several other 30 Rock vets are also on board.
- Recent Netflix deals: Between, Adam Sandler, The Weinstein Company
Yesterday, 10:05 AM
- The NY Post reports Amazon (AMZN +1.7%) will launch an ad-supported video service next year that won't require a Prime subscription. "The main point is to bring in more users that you can eventually up-sell to Prime, or to get to a broader audience that doesn’t want to pay for Prime," says a source.
- The WSJ reported in March Amazon was prepping a free/ad-supported streaming service, but Amazon quickly denied it had plans to do so. The Post's sources state roughly half of Amazon's Prime subscriber base (recently estimated by RBC to total 40M-50M) uses Prime Instant Video.
- Netflix (NFLX -0.7%) is off slightly on a morning the Nasdaq is up 0.7%. The company (37M U.S. subs, 53M globally) has long been contending with ad-supported streaming services from Hulu and others.
- Yesterday: Amazon reportedly prepping travel service
- Update: An Amazon spokeswoman says the company hasn't "announced any plans" for an ad-supported services, but adds it's "often experimenting with new offers and experiences for customers."
Wed, Nov. 19, 9:50 AM
- Netflix (NASDAQ:NFLX) could be a target of Google in 2015, speculates CCS Insight.
- A report from the research firm also mentions Yahoo and Alibaba as potential suitors.
- If Google doesn't buy Netflix, it will launch its own video streaming service in 2015, predicts CCS.
- Shares of Netflix are up 0.5% in early action - potentially boosted by a bit of algo news headline trading.
Tue, Nov. 18, 9:41 PM
- Nielsen (NYSE:NLSN) will begin tracking TV viewership on online subscription services in December, sources tell the WSJ.
- The technology used by Nielsen to derive the ratings measurements won't require any cooperation from streamers such as Netflix (NASDAQ:NFLX) or Amazon Prime (NASDAQ:AMZN).
- The development could help content owners compute the impact of licensing their programming and prevent them from having to negotiate in the dark.
- Related stocks: TWX, AMCX, CBS, CMCSA, DIS, FOXA, SNE, LGF, VIA, VIAB, RENT.
Tue, Nov. 18, 6:06 PM
- Netflix's (NASDAQ:NFLX) services, frequently accessed in English-speaking Australia and New Zealand using VPNs, will become legally available in the countries in March 2015. No details on pricing yet.
- Between them, Australia and New Zealand have 27M people. Netflix is just two months removed from launching in six new European markets (inc. France and Germany); it now operates in over 40 countries.
- The company's breakneck expansion pace has taken a toll on near-term profits - international contribution margin was -8.9% in Q3, and is expected to be at -24.5% in Q4. But the spending has also provided Netflix with additional scale to help finance content purchases.
Thu, Nov. 13, 8:46 PM
- Sony's (NYSE:SNE) new online TV package will price at $60 to $70 per month, estimates Re/code.
- It's a level that is twice what Dish Network (NASDAQ:DISH) plans to charge for a slimmer package, although one that includes ESPN.
- Programming on the Sony streaming service will feature shows from CBS, Discovery Communications, Fox, NBC, Scripps Networks, and Viacom.
- The pitch from the Japanese media giant is that cord-cutters will be drawn in by the captivating way of accessing the content through gaming consoles. A cutting-edge discovery and recommendations service for users is also highlighted by execs.
- Regulatory watch: Potential rule changes from the FCC could level the playing field for the new streamers as they work out their content deals.
- What to watch: A fragmented pay-TV landscape could benefit content producers (DISCA, CBS, FOXA, DIS, LGF, TWX, AMCX) in the short-term as competition heats up, while creating a pricing headache for cable/satellite/telco players (CMCSA, CVC, CHTR, DISH, T, DTV, VZ, TWC).
- The Netflix factor: Many media analysts consider Netflix (NASDAQ:NFLX) an add-on for consumers - instead of an either/or decision with online TV.
Tue, Nov. 11, 2:45 PM
- Netflix (NASDAQ:NFLX) CFO David Wells took some Q&A at a RBC Capital Markets conference earlier today.
- The exec said the addressable U.S. market of 60M-90M subscribers in the U.S. isn't an expectation - but a target.
- He says it will take a few more quarters to draw any conclusions on price elasticity vs. subscriber growth.
- The impact of new streaming rivals only validates the value proposition of Netflix, maintains Wells. He does concede competition on the content bidding side could be a side effect.
- Netflix still controls the levers on margins. Wells wants investors to compare trailing 12-month margin rates as opposed to quarter-over-quarter.
- RBC Capital Markets 2014 Technology, Internent, Media and Telecommunications Conference webcast
Mon, Nov. 10, 10:50 AM
- In a win for net neutrality proponents, Pres. Obama is calling for the FCC to "reclassify consumer broadband service under Title II of the Telecommunications Act," thereby treating it as a utility subject to common-carrier regulations originally set up for wireline phone networks.
- Obama does qualify his statement by adding the FCC should forbear from "rate regulation and other [Title II] provisions less relevant to broadband services." However, he also calls for prohibitions on the blocking or throttling of legal content, and (notably) on the creation of paid-prioritization (i.e. fast lane) deals between content providers and ISPs.
- Also: Obama wants the FCC to enforce these policies for wireline and mobile networks, albeit while "recognizing the special challenges that come with managing wireless networks." Prior neutrality rules (shot down earlier this year) only covered wireline networks.
- The proposal is much more aggressive than the one recently floated by FCC chairman Tom Wheeler: He argued for regulating back-end connections between content providers and ISPs under Title II rules, but not doing so for last-mile consumer broadband connections, thus leaving the door open for paid-prioritization.
- Netflix (NFLX +1.1%), which has been vocally pushing for tougher neutrality rules as it squabbles with ISPs over peering payments, streaming speeds, and alleged throttling, has to be pleased.
Fri, Oct. 31, 12:29 PM
- In a compromise proposal that could give both ISPs and net neutrality proponents much to complain about, the FCC plans to lightly regulate consumer broadband services - they'd be classified as a "retail" service - but also tightly regulate connections between sites and ISP networks under common carrier (i.e. Title II) rules originally created for phone networks.
- The back-end rules could go over well with Netflix (NFLX +2.7%), which has reluctantly struck paid peering/interconnection deals with major ISPs to guarantee high streaming speeds. Reed Hastings has been vocally calling for tougher neutrality rules. Cogent's (CCOI +0.8%) shares tumbled after Netflix struck its first paid peering deal (with Comcast).
- The last-mile rules, however, appear to leave the door open for ISPs to charge Internet companies extra for paid priority/fast-lane access, an idea previously floated by FCC chairman Tom Wheeler. Comcast, Verizon, and AT&T recently declared they have no plans to strike fast-lane deals.
- Neutrality proponents question the ability of a hybrid proposal to withstand legal challenges. "The FCC would lose in court a third time," says Stanford law prof. Barbara van Schewick.
Wed, Oct. 29, 1:22 PM
- A bid by Aereo to be defined as a cable provider gained support from the FCC with a new proposal out this week which was described in a blog post written by Chairman Tom Wheeler.
- The agency supports "open access" for consumers to high-speed broadband delivery and the right of over-the-top firms to offer programming owned by pay-TV providers and broadcasters.
- In essence, the FCC thinks the bundled pay-TV model should be broken so that consumers will not be forced to pay for channels they never watch.
- What to watch: Though Aero isn't likely to be the ultimate pay-TV disrupter without the deep pockets to license content, the position of the FCC opens the door for other Internet video players to emerge and chips away at the bundled channels model.
- Related stocks: DISH, DTV, CMCSA, CHTR, CVC, TWC, VZ, T, NFLX.
Mon, Oct. 27, 11:53 AM
- BTIG Research is out with a new research note in which it reports that Verizon is offering FiOS customers a free year of Netflix (NFLX -1.7%) service and a $150 gift card if they sign up for the company's triple play service.
- Further review of the deal by DSLReports.com indicates the offer is limited to New York City customers for only a limited sign-up period.
- What to watch: Though the promotion isn't widespread or lasting, it indicates some capitulation from the pay-TV side on Netflix as a staple.
Fri, Oct. 24, 1:48 PM
- RBC is out with a forecast on which studios will make the most money in 2015 from selling off-network series to SVOD concerns such as Netflix (NASDAQ:NFLX), Amazon Prime (NASDAQ:AMZN), and Hulu.
- CBS Studios (NYSE:CBS) leads the pack at $179M, while Warner Bros. (NYSE:TWX) is expected to bring in $106M and Lion's Gate (NYSE:LGF) about $61M.
- Sony Pictures TV (NYSE:SNE), Fox (NASDAQ:FOXA), and ABC Studios (NYSE:DIS) are pegged to bring in $40M-$43M.
- The overall spend of the top three streamers on older series is expected to rise 31% to $6.8B next year.
Mon, Oct. 20, 7:51 AM| 3 Comments
Fri, Oct. 17, 2:26 PM
- Moody's calls the decision by CBS (CBS +2.3%) to move forward with a streaming service another step forward in the "transformation" of content delivery.
- The ratings agency thinks the product will be attractive to millennials and cord nevers, but is undermined a bit by not including NFL broadcasts.
- In an interesting pullout, Moody's predicts the service won't have a material impact on subscriber demand for SVOD concerns such as Netflix (NFLX -2.2%), Hulu, and Amazon Prime (NASDAQ:AMZN).
- Moody's also point out that content providers will have the ability to set restrictions on content delivery in order to maximize revenue streams. Disney's (DIS +2.6%) ESPN comes to mind.
Fri, Oct. 17, 11:49 AM
- Mark Cuban on Twitter: "I'm buying NFLX stock. At half of YHOO, 10B<Twitter and small pct of major media companies, Someone will try to buy them."
- Netflix (NFLX -3.8%), which has a current market cap of $20.9B, ticked slightly higher on Cuban's remarks, but continues to sell off for the second day in a row after reporting soft Q3 subscriber adds.
- The outspoken Dallas Mavericks owner has plenty of industry experience: He once sold Broadcast.com to Yahoo for $5.7B, and now controls multiple studios and TV network AXS TV. He was less positive on Netflix back in 2010, predicting (not too accurately) the company would struggle to land deals for high-profile Hollywood content.
Thu, Oct. 16, 12:45 PM
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