In short, Netflix's unusual success is precisely the reason its stock price is unusually high. While not all content is available for download, this feature dramatically increases the utility of a Netflix subscription.Ĭon #2: Losing luster as takeover target. By downloading content, customers can enjoy Netflix even without an internet connection, and will also be able to avoid going over network data limits far more easily. Subscribers can now download their favorite shows and movies on their mobile devices, which is a huge win for customers. It also means shares trade for more than 120 times projected 2017 earnings, a multiple that will require astronomical earnings growth in the coming years to justify. A price around $120/share values Netflix at around $50 billion. The company's expectation-topping numbers have only led to a meteoric valuation. While Netflix stock's most compelling catalyst is its strong growth, that's precisely why it hasn't been ignored by Wall Street. "The on-demand generation is here and they will reshape the way we consume content forever."Ĭon #1: Sky-high valuation. After the first commercial on TV the child will switch to NFLX and never go back," Kramer says. "Give a 5-year-old two options: every cable TV channel created or one subscription to NFLX. Luckily for NFLX shareholders, Netflix is doing both, with standard subscription prices now at $9.99 a month, up from $7.99 a few years ago.ĭespite that headwind, Netflix added 3.57 million members globally in the third quarter of 2016, trouncing the 2.3 million members the company expected to add.Īccording to Michael Kramer, a portfolio manager on Covestor and founder of Mott Capital Management in Garden City, New York, kids growing up today on Netflix will remain loyal to the model. Other than raising subscription prices, that's the only way to grow the top line. It's no surprise that subscription-based business models rely on subscriber growth to increase revenue.
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