Netflix Is Overvalued But Not Just Because Of The Subscriber Growth Miss

Jul. 30, 2019 3:39 PM ETNetflix, Inc. (NFLX)19 Comments


  • Netflix missed subscriber growth estimates in Q2 but investors have many other bigger problems to focus on.
  • The subscriber growth miss reveals the tip of the iceberg.
  • Competition is not the only negative development for Netflix. There are both internal and external developments that are poised to make life difficult for Netflix in the future.

Over the last couple of weeks, the talk of the town has been how and why Netflix (NASDAQ:NFLX) missed its subscriber growth estimates for Q2. Investors are accustomed to Netflix beating its own estimates for subscriber growth consistently, which sent shockwaves through the market when Netflix missed its subscriber growth estimates by a staggering 2.3 million for Q2.

(Source - Earnings call slides)

In my last take on Netflix in March, I urged investors to take a back seat and be fearful of Netflix when others are greedy. Since then, the stock price shot up to new highs as investors continued to be greedy, fueled by hopes of continued earnings beats for many years to come. Investors certainly received a reality check when Netflix missed its subscriber growth estimates, which is evident by the more than 10% drop of NFLX after releasing Q2 earnings results. Even though the subscriber growth miss confirms my thesis that NFLX is overvalued, I believe investors should not focus entirely on subscriber growth misses or beats to determine whether NFLX is truly overvalued or not. Basing the investment decision on NFLX on subscriber growth misses and beats is a dangerous move, but NFLX continues to remain overvalued.

Don't just worry about the subscriber growth miss

In investing, it's essential to focus on the things that matter and the things that make a true impact on valuation estimates. If you are an investor bullish on Netflix, there's little reason to worry about the subscriber growth miss in Q2. While subscriber growth misses do not sound promising, this is not the first time Netflix failed to meet their expectations.

Netflix had a record-breaking Q1 in which they added 9.6 million subscribers worldwide, which easily surpassed their estimates for the corresponding quarter. The management believes the subscriber growth miss is

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