Don't Trust NetflixNFLX) meteoric rise has been very impressive over the years. Despite the stock’s valuation being stretched for quite some time, it has continued to rally amid the bear criticism.
However, the recent quarter does indicate the company’s best days are behind it.
Also Read: Why Netflix Looks Like a Short
Throughout the second quarter, the company failed to achieve its subscriber target, an intermittent miss for Netflix that has generally proposed conservative guidance that it can surpass without problems.
Moreover, big-data analysts are projecting that the company gained as many local subscribers as it lost throughout the quarter, considerably short of the 300,000 net additions that the company was estimating before this summer.
On the flipside, one of the most significant things in this particular industry is customer satisfaction, and according to a UBS AG survey, 59% of subscribers reported that they are very satisfied with the services offered by the company.
While the company has delivered marvellous growth throughout the past few years by leveraging its leadership position in online TV, rivals like Amazon.com (AMZN) and Hulu are lessening the gap when it comes to customer satisfaction.
At the same time, the company is showing decelerating growth. If Netflix is losing its subscribers to Amazon and Hulu, it could face mounting troubles.
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On the bright side, stockholders should not forget that Netflix's entire industry is growing. The company is well positioned to carry on delivering significant growth in the imminent years, even in the progressively escalating competitive pressure environment.
Moreover, the company believes that the slowing growth shown in the previous quarter was mainly due to a one-time surge in prices, a result of the enduring impact from rising competition. Long-term though, competitive pressure will inevitably eat into growth expectations.
A mixed bagNetflix may has faced some growing pains over the past few quarters. While revenues are still moving higher, they may not keep pace with investors historical expectations. Betting on continued revenue growth is a good bet, but at current nose-bleed prices, there's no guarantee that Netflix stock will follow suit.
Published on Oct 11, 2016By Prudent Investor