Sunday, April 19, 2015

Stock Talk - Netflix

Netflix stock sells for $571 a share, well over 100 times what analysts expect the Company to earn next year – and over triple what you could have bought it for two years ago.  The Company is valued at over $34 billion today, and some people believe it will go much higher in the coming months.

There’s a reason for that nosebleed-high valuation. Netflix is revolutionizing the way we watch television. It is run by a bona fide visionary, Reed Hastings, and it is growing by leaps and bounds, especially overseas. Every hour I stream a movie or TV series on Netflix is an hour I do not watch conventional TV – and on many evenings I don’t watch cable TV or the networks at all.  These are the evenings I settle back for a good movie like Shirley Valentine or The First Position or Quartet or an episode of two of a TV series, courtesy of Netflix. 

The old guard is aware of what’s happening. A few days ago Verizon announced that it will soon unbundle channels for its FIOS customers.  Comcast and Time-Warner Cable, which have been milking their bundles for years, see the writing on the wall. And there will be more revolutionaries to come, as companies like Amazon and Apple are not likely to let Netflix have the disruptive technology without competition.

Still, first movers have an edge, and Netflix is running fast. The Company’s catalog of movies and in-house miniseries is growing fast, and I marvel at how much Netflix’s “content” has grown in quantity and quality.

Still, the valuation is now very high by any standards. If you think Netflix will continue its march on the living rooms of the world, you may want to buy a few shares. But for conservative investors like this one, I will continue to watch from the sidelines