I think Netflix is an awesome service and is not going anywhere. The 83B dollar valuation is insane.
Why? First, the company does not care about its shareholders whatsoever. Since the stock has shot up in the last few years, there is no need to instill a share buyback program or pay a dividend. Instead, the company is rewarding its top executives with huge bonuses including 10s of millions in stock options, diluting shareholders stake in the company. The company can't reward its shareholders when its cash flow negative, and that doesn't seem to be changing anytime soon.
Second, the company is not doing much to establish a competitive advantage. Disney has recently removed its content from Netflix and is streaming without Netflix as a middle man. Apple also is trying to get into the streaming business. HBO Go, Hulu, Amazon Prime are already established big competitors. The only competitive advantage Netflix has is the original content it creates, which is extremely expensive.
The issue with the valuation is the company is currently trading at a p/e of 200 and an ev/ebitda of 106. With additions of competitors I see pricing pressure being put on the company which will decrease net income. How many more subscribers can Netflix realistically get? With prices the same, Netflix will have to quadruple its subscribers in the next few years to be trading anywhere near a reasonable valuation.
With all these reasons combined, I can't justify Netflix's current price at all. I have no explanation for how the company can be trading for so much, but that doesn't mean the positive momentum won't carry the stock price up higher. During the next market correction, this stock with no fundamentals backing its valuation will hit the ground.
Submitted December 31, 2017 at 08:03AM by InvestingLifeSavings http://ift.tt/2C1iZlC
