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Why Netflix Investors Shouldn't Fear Marco Polo Or Future Original Content
- NFLX investors remain fearful of its rising content obligations, including the money it has spent on new series Marco Polo.
- With plans for 20 new series a year, NFLX content costs are sure to keep rising.
- However, the company's emphasis on technology will result in a positive return in exchange for high content costs.
- NFLX has fallen 30% in the last three months on fears of slowing sub growth and higher content expenses.
- Yet, based on GoPro's media assets and YouTube's valuation, NFLX shares have fallen to a desirable range.
- The fears associated with NFLX are overstated.
Netflix Headed To 18 Million International Subscribers, International Profits Remain Nonexistent
- Approximately 91% of total international subscribers were paid ones which suggests that the total count could reach 18.7 million by the end of this year.
- We estimate the international streaming business constitutes roughly 20% to Netflix's value.
- Subscriber growth in international markets will remain strong in coming quarters, but the segment still lags far behind the U.S. in terms of profit contribution.
- At the end of the year, tax-loss harvesting is a major issue affecting investment securities that are down in a majority of the year's trading days.
- To measure the risk of such securities, a new algorithm called the current underwater position, or CUP, is presented.
- Using the CUP, investors can rank the risk of securities as both stand-alone and intra-industry risks. Netflix is used as a strong short-er bear case.
Netflix Notches Another First By Acquiring 'Unbreakable Kimmy Schmidt' From NBC
- Netflix has added ‘Unbreakable Kimmy Schmidt’ to its roster from NBC which had the series as a midseason replacement for 2015.
- ‘Schmidt’ comes from ’30 Rock’s’ Tina Fey and Robert Carlock, which gives the show a pedigree many are surprised NBC passed up.
- Comedies in general are hard to launch for the major networks and Netflix’s acquisition here will have a ripple effect throughout the entire industry.
- But I'm still buying a small batch to dollar cost average down.
- The fundamentals look very expensive but this is an earnings growth story.
- The company continues to expand globally and will soon realize returns on their investments.
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.
Thu, Oct. 9, 9:07 AM
- In his open letter to Apple, Carl Icahn backs the contention of Netflix (NASDAQ:NFLX) CEO Reed Hastings that Ultra HD TVs will be a major catalyst for the company in the future.
- Icahn and Apple CEO Tim Cook have both chipped away at the aging pay-TV model in the past with their comments in a nod to Netflix's streaming model.
- Most analysts think an Apple Ultra HD TV product would be a net positive for Netflix.
- Cal Icahn still holds a sizable position in Netflix despite dumping 421K shares at a profit earlier this year.
Sat, Oct. 4, 5:14 PM
- Redbox Instant, a streaming video service operated by Verizon Communications (NYSE:VZ) and Outerwall's (NASDAQ:OUTR) Redbox, will shut down next week because the venture has not been as successful as hoped.
- The JV launched in March 2013, and was viewed as a potential rival to Netflix (NASDAQ:NFLX). The service provided subscribers with access to a streaming library, plus the option to obtain credits toward DVD/Blu-ray discs that are available at Redbox kiosks. Customers could also rent or buy titles electronically from a separate library, with rentals starting at $3 for 48 hours, and purchases starting at $9.
- Redbox Instant by Verizon has not disclosed subscriber figures.
- Rumors about a shutdown first surfaced about a week ago; the service had disabled new sign-ups for three months due to a credit card fraud issue.
Thu, Oct. 2, 9:28 AM
- A survey of consumers by RBC Capital Markets indicates viewership of network TV websites has fallen.
- YouTube, Netflix (NASDAQ:NFLX), and Amazon (NASDAQ:AMZN) scored a higher percentage of viewers from a year ago - while NBC (NASDAQ:CMCSA), ABC (NYSE:DIS), CBS (NYSE:CBS), and Fox (NASDAQ:FOXA) were all in decline over the period.
- HBO Go (NYSE:TWX) saw its percentage of users rise to 10% from 6%, while Hulu fell back.
- Secular TV ratings have also been in decline for networks.
Thu, Oct. 2, 8:10 AM
- Netflix (NASDAQ:NFLX) signs an exclusive deal with actor Adam Sandler to produce and star in four movies.
- The company cites Sandler's global appeal as a major factor in striking the arrangement.
- It's been a huge week already for Netflix after it created a shockwave in the movie industry with its plan to release its first feature film.
Wed, Oct. 1, 2:53 PM
- Stephane Richard, the CEO of giant French telco Orange (ORAN -2.6%), has confirmed to Le Monde Orange will offer Netflix's (NFLX -2.8%) services to pay-TV clients through its set-tops. "The negotiations were tough but are finished. There is no reason to penalize Orange customers, who will have a much better experience using Netflix through the box."
- Orange had 5.78M French TV subs at the end of Q2. Netflix launched in France (and several other European markets) last month, and has already struck a deal with Orange rival Bouygues.
- European pay-TV providers have generally been more willing to partner with Netflix than their American peers, who often view the company as a threat.
Tue, Sep. 30, 1:17 PM
- The long-established window for feature films established between Hollywood studios and theater exhibitors will crack in a major fashion next summer when Netflix (NFLX +1.1%) and IMAX (IMAX +0.7%) jointly release a film online and through the large-screen IMAX format.
- Though media analysts think theater chains will continue to bristle over the game-changing initiative - and for now IMAX says it will let exhibitors control the films that run on IMAX screens - IMAX sits in a powerful position in the future if it wants to play hardball.
- "Netflix already changed the TV business in a very, very significant way. The movie business is teed up next," says BTIG's Rich Greenfield on the development.
- Netflix and Weinstein are collaborating on a number of projects, several of which could turn into straight-to-streaming feature films.
- What to watch: Hollywood studios (LGF, SNE, VIA, CMCSA, DIS) could be the ones to have the final say on if the feature film window model is adjusted.
Tue, Sep. 30, 10:45 AM
- Regal Entertainment (RGC -1.8%) slams Netflix (NASDAQ:NFLX) and IMAX (NYSE:IMAX) over their new collaboration to release films simultaneously at IMAX theaters and via Netflix's streaming service.
- The company emphatically states that it will not participate in the "experiment" to release the same product on screen three stories tall and 3 inches wide.
- Regal operates a total of 86 IMAX theaters.
- Movie theater chains Cinemark (CNK -0.8%), Carmike Cinemas (CKEC -1.7%), and AMC Entertainment (AMC -0.2%) are likely to weigh in on the development shortly.
Tue, Sep. 30, 9:50 AM
- The decision by Netflix (NASDAQ:NFLX) to offer feature films at select IMAX (NYSE:IMAX) theaters will present it with a "terrific opportunity," says IMAX Entertainment CEO Greg Foster.
- The plan for simultaneous IMAX-Netflix releases in China and U.S. has been tapped to be a market disrupter by some film insiders, although without getting a look at the financial nuts and bolts of the revenue split they are hesitant to label winners and losers from the deal.
- The partnership will be small in scale at first with its success likely to be highly-contingent on the quality of Weinstein films feeding the initiative.
Tue, Sep. 30, 9:19 AM
- The FCC is considering new regulations for companies looking to offer an over-the-top online video service, according to The Wall Street Journal.
- Rules governing OTT services could make it harder for content providers and distributors to carve out smaller deals for programming.
- Traditional streamers such as Netflix (NASDAQ:NFLX), Hulu (DIS, CMCSA, FOXA), and Amazon (NASDAQ:AMZN) that offer their content on-demand should be outside the regulatory purview of the FCC on the OTT startups.
- Dish Network (NASDAQ:DISH), Sony (NYSE:SNE), and Verizon (NYSE:VZ) are the furthest along in the race for a trimmed-down online video package aimed largely at cord-cutters and cord-nevers.
Tue, Sep. 30, 7:28 AM
- Netflix (NASDAQ:NFLX) signs a deal with The Weinstein Co. for its first original movie.
- Crouching Tiger, Hidden Dragon: The Green Legend is scheduled for a August 28, 2015 release at IMAX theaters and on Netflix's streaming service.
- The source material for the film is Crane-Iron Pentalogy by Wang Du Lu which also spawned Crouching Tiger Hidden Dragon in 2000.
- What to watch: The decision by the company to premiere a movie pits it in direct confrontation with movie theater chains (RGC, CKEC, CNK, AMC) for the first time.
- NFLX +0.2% premarket
Fri, Sep. 26, 6:55 AM
- The war of words over the Comcast-Time Warner Cable merger goes on in the pay-TV industry.
- Comcast (NASDAQ:CMCSA) drew the ire of the group by using the word "extortion" in describing recent negotiations with rivals.
- Dish Network (NASDAQ:DISH), Discovery Communications (NASDAQ:DISCA), and Netflix (NASDAQ:NFLX) each called out Comcast for its claims.
Thu, Sep. 25, 7:08 PM
- Research firm The Diffusion Group estimates the average Netflix (NASDAQ:NFLX) sub streamed 46.6 hours of video per month in Q2. That's up from 39 hours in Q2 2013 and 36.3 in Q2 2012, and equal to over 93 minutes/day.
- Also: Thanks to strong international sub growth, Diffusion estimates the U.S. now only accounts for 72% of Netflix streaming, down from 94% in Q3 2011.
- GigaOm notes that with the average U.S. stream having a speed of 2.57Mbps (per Netflix's data), the average U.S. Netflix sub appears to be "burning through 45 GB of data every month." ISPs seem to be aware of this phenomenon.
- How worried should the TV industry be? The average American watches 5 hours of TV per day, and ratings have been going in the wrong direction.
Tue, Sep. 16, 11:49 AM
- Netflix (NFLX -1.4%) has given an "eye-popping" two-year commitment to comedy series Love from Judd Apatow, reports Variety. CCO Ted Saranos says the new series will bring a whole new level of "agony and ecstasy" to the modern day comedy of manners.
- The company cleared a hurdled in France after telecom Bouygues announced it would integrate the streaming service into its set-top boxes this fall. Orange may follow suit.
- The third season of House of Cards is currently being filmed. The 13-episode original series is expected to debut in February of 2015.
- Shares of Netflix dipped below $450 for the first time since mid-August before recovering a bit.
Tue, Sep. 16, 8:20 AM| 3 Comments
Mon, Sep. 15, 3:39 AM
- Netflix (NASDAQ:NFLX) is continuing its international expansion this week, launching service in in France, Germany, Austria, Switzerland, Belgium and Luxembourg.
- "This is the biggest international launch we’ve ever done,” says CEO Reed Hastings. "It represents nearly 80M broadband households and about 200M people."
- International expansion is critical to Netflix's growth prospects. The company's current international investments, such as Latin America and the U.K., are on track to be profitable by the fourth quarter.
Wed, Sep. 10, 9:25 AM
- A number of Internet companies are staging an organized protest against the FCC's net neutrality proposal today.
- Though Twitter (NYSE:TWTR), Netflix (NASDAQ:NFLX), Mozilla, and Reddit aren't actually slowing down their websites, they are drawing attention to the current and suggested policies of broadband providers (CHTR, CVC, TWC, CMCSA, VZ) with loading icons dedicated to the cause of an open Internet.
- The proposed "fast-lane" premium pipeline for content providers would mark the end of Internet freedom, according to the group.
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