The Fire Within Netflix Stock Still Burns Despite the Panic
When people think of Netflix (NASDAQ:NFLX) all they want to talk about is the sickening fall Netflix stock experienced during the bear market — a drop of one-third in just six months. But they might be wiser to put that into perspective: Netflix stock was up 33% overall in 2018, and the business model is still working on all cylinders going into 2019.
While growth is slowing as the numbers get bigger, the company is still booming. Netflix is expecting total revenue of $15.7 billion for all of 2018, which it reports Jan. 17, with net income of about $1.2 billion.
The NFLX stock price will remain under short-term pressure, as it will no longer pay Apple (NASDAQ:AAPL) to collect its subscription revenue through iTunes for 15% of the total. That saves NFLX about $256 million, but it will take time to move customers to Netflix’s other payment systems.
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NFLX Is a Global Brand
Netflix remains two steps ahead of all its rivals, and that’s a great advantage for Netflix stock in the longer run.
While Walt Disney (NYSE:DIS) is just now getting into streaming, NFLX has been there for a decade, and it has figured out global marketing, tastes and content restrictions, as well as global delivery costs.
While its rivals tout their libraries of old content, Netflix has a rising tide of new content, pre-tested against the preferences of its audiences. It has an affordable pricing structure, and global distribution agreements are in place. As broadband reaches into more homes and mobile networks, competitors become complementary, not replacements.
Netflix’s strategy is based less on hits but on hits within niches. The company doesn’t release ratings and doesn’t have to because it has yet to take ads. But sometimes numbers leak out, like Bird Box, a film starring Sandra Bullock that was streamed 45 million times in the first week after its release.
The number is astounding, in a world where hit TV shows draw audiences of just a few million, and $100 million budgets are required to draw audiences of 10 million in a week. It’s also four times more than the 11 million who saw 2017’s Bright right after its release.
Netflix Stock Is Still Pricey
The only problem for investors is the NFLX stock price, and the metrics you must use to justify buying it. That’s particularly important in a world where equity prices continue to fall, especially for fast growth internet companies.
At its expected Jan. 2 opening price of $263 per share, investors are paying 95 times earnings for Netflix. At its market cap of $116 billion, you’re paying almost 7.5 times that 2018 revenue for your shares. By way of contrast, investors in Walt Disney are paying 13 times earnings, and three times its fiscal 2018 revenue.
The result is many analysts are now piling into Disney as a less-risky play, and saying the networks of AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA) give their offerings a fundamental advantage in a world without network neutrality.
The big studios are pulling their content off Netflix’ shelves, but in 2017, Netflix aired 700 series of its own as well as about 80 full-length feature films. The shows are in a wide variety of languages, covering a wide variety of markets.
The Bottom Line on NFLX Stock
While Disney, AT&T and Comcast may become competitive in the U.S. market, NFLX is primarily an international company. While its rivals are guessing at what audiences might watch, NFLX has data proving what its audiences want, and agreements with producers to deliver that content at profitable prices.
The question isn’t whether rivals can undercut Netflix, but how much more Netflix can grow before exhausting the market. It had 130 million customers worldwide at the end of the third quarter and it was growing four times faster internationally than in the U.S. market.
There’s still plenty of room to run. When the bear goes back to its den, put Netflix stock on your buy list.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
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