Post by The Big Daddy C-Master on Jan 1, 2016 17:18:22 GMT -5
www.investopedia.com/articles/investing/123015/will-netflix-stream-more-growth-2016.asp
2015 was the year that Netflix (NFLX) came into its own.
With gains of as much as 168%, the company's stock was the highest gainer in the S&P 500 as analysts and investors enthused about its growth prospects. It branched out into new markets and continued its march into original programming by producing new hit series, such as Narcos, Sense8 and Master of None. It also let go of expensive licensing deals to devote resources to original content. For example, it did not renew a deal with Epix movies that expired at the end of August and, instead, promoted its original offerings in a blog post announcing termination of the deal. (Read "How Netflix is Changing the Movie Industry")
The company's foray into original content was also a hit with critics. Along with Amazon's (AMZN) Prime service, the movie streaming service stood out from the rest of the television crowd at the Emmys. Both services racked up 46 nominations altogether.
What's In Store For 2016
After an extremely successful year in the market, expectations are high from the company. Some of its fundamentals are sound. For example, it has a low debt to equity ratio, which is the norm for most technology companies. Some are not, however. With a market cap of slightly over $50 billion, the company has an astounding P/E ratio of 316, as of this writing. The company would have to significantly up its growth rates to be worthy of that kind of growth pattern. Then, there is also the competition. Google's (GOOG) Youtube will provide stiff competition to the service will provide stiff competition to the service.
RBC Capital analyst Mark Mahaney expects 2016 to be Netflix's biggest ever in terms of original content. In an interview earlier this year, Netflix CEO Reed Hastings said the company had already earmarked $5 billion for original content production next year. Forty percent of that amount is set aside for international rights. Given its geographical expansion and increasing popularity in Europe, that should translate into additional subscription dollars for the company. Mahaney estimates 200 million new subscribers for Netflix in 2016.
Well-known hedge fund manager David Einhorn, however, is bearish on the stock. In an investor letter in July, he wrote: "[Netflix] transitioned from a company judged by how much it earns into a company judged by how much it spends. Whether the spending proves successful won't be known during the investment horizon of most NFLX shareholders..In today's market, the best performing stocks are companies where accountability is in the distant future...apparently Red Ink is the New Black."
The Bottom Line
Netflix's stock has been on a steep growth curve this year as investors piled onto the stock based on its perceived future growth prospects. But, unrealistic expectations from short term investors and a high earnings multiple could prove to be road blocks in its growth story.
2015 was the year that Netflix (NFLX) came into its own.
With gains of as much as 168%, the company's stock was the highest gainer in the S&P 500 as analysts and investors enthused about its growth prospects. It branched out into new markets and continued its march into original programming by producing new hit series, such as Narcos, Sense8 and Master of None. It also let go of expensive licensing deals to devote resources to original content. For example, it did not renew a deal with Epix movies that expired at the end of August and, instead, promoted its original offerings in a blog post announcing termination of the deal. (Read "How Netflix is Changing the Movie Industry")
The company's foray into original content was also a hit with critics. Along with Amazon's (AMZN) Prime service, the movie streaming service stood out from the rest of the television crowd at the Emmys. Both services racked up 46 nominations altogether.
What's In Store For 2016
After an extremely successful year in the market, expectations are high from the company. Some of its fundamentals are sound. For example, it has a low debt to equity ratio, which is the norm for most technology companies. Some are not, however. With a market cap of slightly over $50 billion, the company has an astounding P/E ratio of 316, as of this writing. The company would have to significantly up its growth rates to be worthy of that kind of growth pattern. Then, there is also the competition. Google's (GOOG) Youtube will provide stiff competition to the service will provide stiff competition to the service.
RBC Capital analyst Mark Mahaney expects 2016 to be Netflix's biggest ever in terms of original content. In an interview earlier this year, Netflix CEO Reed Hastings said the company had already earmarked $5 billion for original content production next year. Forty percent of that amount is set aside for international rights. Given its geographical expansion and increasing popularity in Europe, that should translate into additional subscription dollars for the company. Mahaney estimates 200 million new subscribers for Netflix in 2016.
Well-known hedge fund manager David Einhorn, however, is bearish on the stock. In an investor letter in July, he wrote: "[Netflix] transitioned from a company judged by how much it earns into a company judged by how much it spends. Whether the spending proves successful won't be known during the investment horizon of most NFLX shareholders..In today's market, the best performing stocks are companies where accountability is in the distant future...apparently Red Ink is the New Black."
The Bottom Line
Netflix's stock has been on a steep growth curve this year as investors piled onto the stock based on its perceived future growth prospects. But, unrealistic expectations from short term investors and a high earnings multiple could prove to be road blocks in its growth story.
