Company Review Thursday: Netflix

There was a time when a Blockbuster membership card was worth its weight in gold. As a preteen, I used my parent's Blockbuster card to rent VHS movies and PlayStation games and buy truck loads of popcorn and candy. But 'when I was a child, I spoke like a child and thought like a child' and now that I've grown up, I've traded in that Blockbuster card for a Netflix subscription.

R.I.P. Blockbuster

At the turn of the century, DVD's took over the media distribution industry. Then there was Blu-Ray. And then there was Netflix. The strategy behind Netflix made it so easy for people to have access to thousands of shows and movies without actually having to purchase the movies and spend hundreds of dollars on the actual DVD or Blu-Ray discs a year. Plus once you have all those movies, how often is it that you watch them? Maybe once or twice, unless you're someone who watches the Friday trilogy every Friday for good measure. And what about those times you binge watch Glee because you never really dedicate yourself to watching the season as it came on primetime TV? You NEED to have access anytime, anyplace. And from this need Netflix was born.

Company Snapshot (Yahoo! Finance Data)
Name:  Netflix, Inc.(as of close of business 12/9/2015)
Ticker: NFLX
Current Price: $124.20
52 Week High Price:$133.27
52 Week Low Price: $45.08
Market Capitalization: $53.08B (Large Capital)
Price/Earnings (P/E Ratio): 330.32
Earnings/Share (EPS): $0.38
Dividend: No Dividend Paid
Industry: Internet & Catalog Retail
Primary Business: Internet Television Network Provider

The Good
Netflix has ruled the internet with exclusive shows like "Orange Is the New Black" and "House of Cards". Devoted watchers can not stop watching and the awards keep piling up for these shows. With exclusive rights to OITNB and HOC, new content in the works, and growth into international markets, Netflix is in the driver's seat in the internet video streaming world.
Netflix also has tremendous use of its technology and they use it primarily to create better experiences for their customers. They monitor how long customers watch videos, when they rewind/fast forward, and track the kinds of movies and shows customers watch. Having this type of data collected gives Netflix a competitive advantage in the customer experience category over other video streaming services with less subscribers.
As they provide customized services to customers, Netflix is also looking to create international movie industry partnerships in order to provide regional content in Chinese, Indian, Japanese and South Korean markets. In particular, Netflix hopes to work with Bollywood, Chinese movie creators and anime creators to provide regional content for international subscribers.

The Bad
Unfortunately Netflix doesn't pay a dividend and they also don't generate significant earnings per share (EPS). With such a low EPS, Netflix seems to be paying a lot of money to gain global market share. This leads me to believe that Netflix at its current $124.20/share is overpriced and I don't like paying more for something than I think it is worth.
Which leads me to my next point because next year my Netflix subscription price is going from $7.99 to $9.99 and I feel some kind of way about it. A significant amount of money is being spent in international growth in the emerging markets (i.e. China, India) and that initiative has yet to become profitable for Netflix. Also with movie and TV show content prices continuing to rise as competition for exclusive rights to content rise, this spending will chop even deeper into the revenue that Netflix produces.

The Ugly
Netflix offers a DVD-to-mail service that is losing traction to the internet subscription based service which now has 69 million subscribers worldwide. With competition as intense with the likes of Amazon and Hulu and network providers like HBO and Showtime inflating prices for their content, internet video service is prime for fierce competition.

I personally have no shares of Netflix. I think its overpriced. I wouldn't see myself paying more that $75/share for Netflix so I've missed the boat on entry. But do you think Netflix will continue to be the leader in online video streaming? Once Netflix has saturated the international markets, will it ever return a good profit or will they have to keep raising prices here in the US to cover some of those expenses? Will that lead to the subscription holders transitioning to other internet video providers for lower prices? And with loss of US subscriptions and in turn revenue, would Netflix be candidate for acquisition by a cash heavy company like Microsoft or Verizon? I have too many questions about Netflix. Its long term potential is hard to see because the price is so high right now. It's a great service provider, but not something I want to invest more in than my $8 monthly subscription.