Netflix - Live Streaming Eclipses Hollywood
Netflix (NFLX.US) has been growing above expectations and rewarding investors willing to back the ever-growing market darling. Early trading indicates that the stock is likely to open 20% up tonight. The real kicker is flowing from their own moving-making.
NFLX announced their third quarter 2016 results overnight. Prior to this release, NFLX traded on a 17 Price to Earnings Ratio (P/E) of 84x - which was still considered expensive when compared with other online consumer stocks. But NFLX is still growing strongly.
Looking at the details of this quarterly report NFLX “added 0.37mm U.S. subscribers and 3.2mm overseas subscribers” explains Kevin Hua co-founder at Atlas Trend.
That’s “well ahead of the 2.3mm new subscribers for 3Q projection set in July. Being 0.3mm in the U.S. and 2mm internationally” continues Hua.
NFLX “now has 86.7mm subscribers globally, reversing a trend of slowing growth that appeared last quarter” Says Hua.
“NFLX is projecting 5.2mm new subscribers for the fourth quarter of 2016; 1.45mm in the U.S. and 3.75mm internationally” says Hua.
“Sales reached US$2.29bn for the period and earnings per share (EPS) also increased to 12c per share beating analysts’ estimates” says Hua.
“One of the main drivers behind NFLX’s growth has been the successful introduction of original NFLX content.” Explains Hua.
“NFLX aims to increase original content from 600 hours to 1,000 hours next year by spending an additional 20% on programming - bringing the total up to US$7 billion.” Says Hua. NFLX’s “original content currently accounts for 10%-20% of programming costs. With US$1.34bn in cash, NFLX plans to borrow via a debt issuance” Says Hua.
Looking forward NFLX’s guidance indicates “that it will only be profitable from next year onwards” says Hua.
While NFLX has been losing money, it has clearly been rewarding investors willing to take the risk on this ever over-prices growth stock.
Christopher is head of equites at Spring Financial Group. Christopher has over 10 years' experience managing equities desks with thousands of retail clients and responsibility for maintaining and servicing retail and wholesale relationships.