Netflix (NFLX) reported quarterly results that added angst, uncertainty, and worry for investors. Shares gained buyers after being touted as a favorite bullish position for Hedge Fund manager Whitney Tilson.
The Good News
- Netflix added 2 million new subscribers worldwide
- Total subscribers rose to 29 million, with 25.1 million from the United States
- Net income was 8 million
- Company reiterated it was committed to original programming
…and the Bad News
- DVD subscriptions declined from 9.24 million in the previous quarter to 8.61 million in the quarter
- Original programming will mean negative free cash flow for the next several quarters
- Competition from HBO (TWX) and Amazon (AMZN), and Hulu in online streaming is growing
- Content liabilities now total $5 billion
- $2.1 billion in liabilities is due in 12 months
AnalysisInvestors should take note of the negative cash flow, deterioration in profit margins, and unknown obligations. Netflix said the liabilities did “ not include obligations that we cannot quantify but could be significant.” Netflix forecast it will lose between $2 million and $13 million next quarter. Valuation Using Kapitall tools, Netflix has a Price of Profit (the amount you are paying for $1 of next year’s profit) of over 70. Its Book Value per Share is $12.39, Price to Book Ratio is 5.5x. The P/E is 38.2x. Business Section: Investing Ideas To evaluate the future prospects for Netflix further using Kapitall’s tools, below is a related list of companies to look at. Online Streaming: 1. Netflix, Inc. (NFLX): Provides subscription based Internet services for TV shows and movies in the United States and internationally. Market cap at $3.34B, most recent closing price at $60.12. 2. Amazon.com Inc. (AMZN): Operates as an online retailer in North America and internationally. Market cap at $103.29B, most recent closing price at $228.49. 3. Pandora Media, Inc. (P): Operates as an Internet radio company in the United States. Market cap at $1.57B, most recent closing price at $9.29. Pandora is not a direct competitor for Netflix, but its offers online music streaming.