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Netflix, Inc. (NFLX) Message Board

  • bstee bstee Sep 19, 2013 2:37 PM Flag

    If 38% of the US uses Netflix...

    And that results in a 370 PE suppose they penetrated close to 100% of those with TV and internet so basically they doubled revenue - it should mean the cost of content (other than original content) would also double. But suppose 100% of the homes in the US had Netflix doesn't this still equate to more than a 100 PE before content providers raise costs? What am I missing?

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    • lifesweetingreencountry lifesweetingreencountry Sep 20, 2013 10:19 AM Flag

      As satika1 says, content is fixed cost while subscriptions are variable, so theoretically added revenue goes to the botttom line. That's why NFLX's projected FWD PE is better. I think the market is also fascinated by what a remarkable value $7.99/mo is. Also, with theaters dying many great movies are going directly to DVD. Streaming will replace that. Netflix is leader. They have untouched advertising, rate increase and Producer-Distributor joint promotion sharing potential. Investors smell big revenue. Irrational? Maybe.

    • The cost of content is fixed expense and does not depends on amount of viewers for now. If NFLX will double amount of subscribers it should not affect the cost of content in a meaningful way, at least till the time of contract renegotiation.

      • 1 Reply to satika1
      • I appreciate the reply, but if they are counting on doubling their subscriber base the amount of time it would take to do so would take at least the length of their current contracts. Recall the renegotiations last time, I believe it was far more than a double and others like Starz simply were no longer interested. They may have a few interesting titles but what about those titles that are exclusive to HBO and Showtime (Game of Thrones, Boardwalk Empire, Nurse Jackie, Homeland). its not like they will always be able to get all programming from Netflix. What I still don't understand is the huge multiple applied to this stock on the potential of growth in the future and original programming like House of Cards, but HBO and cash flow from operations at Time Warner garners perhaps 1/15th the multiple. Netflix cannot seemingly grow large and profitable enough ever to justify the price.

 
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