Is Netflix a Buy?

Netflix (NFLX) announced second quarter ended June 30, 2016 total revenue of $2.11 billion, up 8 percent sequentially from $1.96 billion in first quarter of 2016 and up 29 percent year-over-year from $1.64 billion during the same period last year.

Netflix declared second quarter of 2016 net income of $40.8 million or $0.09 per diluted share, up 47 percent sequentially from $27.7 million or $0.06 per diluted share in first quarter of 2016 and up 55 percent year-over-year from $26.3 million or $0.06 per diluted share in second quarter of 2015.

The global internet television provider reported continued sequential and year-over-year growths in both its top and bottom lines primarily driven by the significant customer traction for the company’s advanced television network online services leading to notable new customer growth.

The consistent sequential and year-over-year growths in Netflix’s subscribers for the quarter has mainly resulted in attractive top and bottom line expansions for the online television services providing company.

Impressive metrics       

For domestic streaming, Netflix reported total memberships by quarter end of 47.1 million, slightly above 47 million memberships sequentially in first quarter of 2016 and an increase of 11 percent year-over-year from total memberships of 42.3 million in second quarter of 2015.
Further, paid memberships for the quarter also grew somewhat and sequentially to 46 million compared to 45.7 million paid subscribers in first quarter of 2016 and enhanced 12 percent year-over-year from 41.1 million paid subscribers in first quarter of 2015.

The ongoing sequential and year-over-year expansion in the company’s top and bottom lines is mainly due to strong, growing paid and total memberships in domestic streaming service segment for the company which is believed to continue to deliver sustainable long-term growth while offering attractive shareholder returns.

For international streaming, Netflix declared total memberships for quarter end of 36 million, slightly above 34.5 million memberships sequentially in first quarter of 2016 and an increase of 55 percent year-over-year from total memberships of 23.3 million in second quarter of 2015. Further, paid memberships for the quarter grew 6 percent sequentially to 33.9 million compared to 32 million paid subscribers in first quarter of 2016 and improved 57 percent year-over-year from 21.6 million paid subscribers in first quarter of 2015.

For domestic DVD, however Netflix registered 4.4 percent sequential decline in total memberships by the period end to 4.53 million in second quarter of 2016 compared to 4.74 million in first quarter of 2016 and reported 15 percent year-over-year decline in total memberships from 5.31 million during the second quarter of 2015. In addition, Netflix also recorded 5 percent sequential decline in paid memberships for the quarter to 4.44 million compared to 4.65 million in first quarter of 2016 and a decline of 15 percent year-over-year from 5.22 million paid memberships in second quarter of 2015.

The significant sequential and year-over-year growths in Netflix’s total and paid memberships for international streaming segment was partially offset by continued sequential and year-over-year decline in total and paid memberships for the company’s domestic DVD segment which clearly signifies greater board attention towards this growth segment, a key to achieving overall robust consolidated company growth.

Conclusion

Overall, the investors are advised to “Hold” their position in Netflix, Inc. considering the company’s significant long-term growth prospects with an attractive PEG ratio of 6.05. The profit margin of 1.85% also seems satisfactory. However, Netflix needs to optimize its debt-burdened balance sheet with significant total debt of $2.37 billion against weaker total cash position of $1.83 billion only, restricting the company to continue with its daily operations profitably.
Published on Jul 29, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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