Netflix – The case for continued decline

by New_Slant

 

Down 11% after earnings. Horrible new subscriber numbers.

IMO, NFLX will continue to tank into the low 200s. It might dead cat bounce here and there but the trend going in 2019 and 2020 is down.

Facts and Opinions

  • It’s US subscription base is saturated. It’s the most stable, profitable. To increase revenue in the US, Netflix has to increase monthly price. This will be a further hit on new subs and current subs.
  • Foreign markets continue to see higher percentage growth. No necessarily a great thing. There’s huge marketing and support costs in trying to penetrate these new territories. This is cash burn hell.
  • Even with the 11% haircut. PE is at 125. CEO keeps saying it’s a media company not a tech company. Well, Hasting, DIS PE is 15. Please explain why your media company is 8 times more expansive then the best media company in the world that, by the way, will own HULU outright and will launch Disney+. NFLX fair value as a media company is 40-50 dollars. Let’s add a 4x multiple for its “growth story”. Then it’s 200 per share. Not 300+
  • It’s business model just does not work. Debt to equity ratio is 1.8. They have a burn rate of 3.5B in 2019 and more of the same in 2020. And for what? It’s mostly spent on content. Besides OITNB, HOC, and Stranger Things, it has not generated many franchises. Disney creates the best content franchises of anyone and it still cannot guarantee a hit. Content is not scalable or predictable. NFLX BURN RATE WILL HAVE TO INCREASE NOT DECREASE. Once Friends and the Office leave, they need their own mega-hits. No guarantees there.
  • Streaming was innovative and convenient 10 years ago. It’s taken for granted now. NFLX has no most. No tech advantage.

TLDR : NFLX f*cked.

 

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