Making the Bull Case for Netflix

Given Netflix’s (NFLX) insane valuation, making a bull case for the stock is really difficult. However, when it comes to revolutionary growth stocks like Netflix, fundamentals rarely help. Netflix has been trading at sky-high levels for years. Bears have been criticizing the stock for a long time, yet Netflix has continued its rally.

While I don’t think Netflix is a buy at these levels, I do think there’s a bull case to make for the company due to its strong growth.

In the most recent quarter, Netflix reported earnings per share of $0.09, $0.07 greater than the estimates.
The company’s revenue came in at $2.10 billion, $10 million less than the estimates. However, that figure still represented a surge of 28 percent year over year.

Recently, Netflix signed an agreement with international cable provider Liberty Global. According to the deal, Liberty Global will include Netflix on its set-top boxes. Netflix will gain huge benefits with this deal as Liberty Global is the largest international cable company around the globe. Liberty Globe has an extensive customer base of 29 million customers, and offers its service in 30 countries.

Most significantly, international providers consider partnership with Netflix as a way to gain a lead over competitors, whereas domestic providers consider it a direct competition.

Currently, the domestic market endures to support majority of the company’s revenue, with 47.1 million subscribers.
Making the Bull Case for Netflix
Image by Pavlofox / Pixabay
However, Netflix is also aggressively focusing on the international market, as it offers huge opportunities in the imminent years. At present level, the company has managed to gather 36 million members apart from the United States.

On the other hand, in European countries, such as Germany, France, and the United Kingdom, streaming video on demand is not a popular service because pay-TV operators are proposing their own superior services. Furthermore, Pay-TV operators also have their own platforms for on-demand viewing.

Initially, the company saw outstanding growth in international markets throughout the first quarter, but later it declined significantly, as it was mostly because of pent-up demand and free trials. It clearly suggests that growth in international market is not that easy, but there is a way through which the company can accelerate its international growth by establishing a better product compared to the existing.

To that end, Netflix is capitalizing in original programming in more than 12 countries comprising of the likes of Germany, Italy, Brazil, France, etc. with the comparatively low penetration of steaming video on demand services in international markets, Netflix still has an enormous opportunity to make an impression.

Will these initiatives help Netflix cross the $100 mark? I don’t know. But I wouldn’t bet against the company either. International growth can increase in the coming quarters, which would make betting against Netflix a very dangerous trade.
Published on Sep 26, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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