Over the last couple of years, Netflix's stock traced a remarkable parabola, rising from $50 in early 2010 to $300 last summer and then falling almost back to $50 again. In recent months, the stock has recovered some of its losses, hitting $125 a couple of months ago.
But now it's tanking again.
Yesterday, Netflix reported its Q1 results. The company actually had a pretty good quarter, adding more than 3 million total subscribers and saying that it will return to profitability sooner than expected. But the company's forecast for U.S. subscriber growth for next quarter was lower than Wall Street expected, and investors are punishing the stock.
So, is this just a setback in Netflix's long-term recovery?
Or was the recent rise to $125 a dead-cat bounce?
According to Felix Salmon, a blogger at Reuters, it was a dead-cat bounce.
Netflix's business will be forever crippled by the content owners, Salmon says. No matter how large Netflix gets, it will be forced to pay top-dollar for the movies and TV shows that its subscribers want to watch, and these royalty payments will eat up all of its profits.
But can't Netflix eventually get big enough that it will regain some leverage over the content owners? After all, it doesn't need to buy ALL movies and TV shows--it just needs to buy some.
No, says Salmon. The competition is too fierce.
Netflix's best bet, in Salmon's opinion, is to make more original content, the way HBO does. This content will actually be cheaper for Netflix than buying third-party content. And it will create a unique service, like HBO, that subscribers will want.
SEE ALSO: Sorry, But This Netflix Collapse Is Overdone.
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