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.
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