Time to buy Netflix?
I’ve been studying Netflix stock closely over the past few weeks, reading about the corporate culture and founder Reed Hastings. It’s an amazing story. Legend has it that Hastings was driving to the gym one day and contemplating how to treat an overdue payment for Apollo 13.
He had misplaced the film after borrowing it from Blockbuster and was due for a $40 late fee. Apparently that was the trigger moment for the birth of Netflix – Hastings thought it would be better to have a video delivery system similar to the gym where you pay a flat fee regardless of how much you use it.
The next day I visited a specialist for an old sports injury. The receptionist said the doctor might be a while but if I got bored there was Netflix available by the TV. Co-incidence? Maybe, but there’s something real to the way Netflix is changing entertainment behaviour around the world.
According to market filings, Netflix has more than 83 million members in more than 190 countries. Throughout its corporate history, there have always been skeptics. When they launched the mail order DVD service, many said they wouldn’t be able to compete with Blockbuster. Netflix offered Blockbuster to acquire it for $50m. Blockbuster rejected the offer. Today Netflix is valued at around US$48bn and the valuation.
Disney management wrote the business off a few years ago. Television networks thought they could outsmart Netflix by withholding content. But then Netflix started producing its own content. It worked out the reason by network content was popular, applied science and data analytics to the process and started to own its content without having to worry about the major networks.
The penetration of Netflix in everyday life is starting to grow, in the same way which Google, YouTube and Facebook have become part of everyday life. Netflix earnings are weighed down by a relatively small monthly subscription fee, but this small fee also makes the customer base sticky and a lot less likely to switch to other competitors. We have already seen at least one major player – Presto – fall victim in the Australian market as it sought to compete with Netflix.
This is an amazing business that is well on its way to having 100 million users. A whole generation of millennials is growing up and using Netflix as the primary form of video entertainment (ahead of Television). What many skeptics don’t understand is that Netflix cannot be valued on a pure price to earnings ratio. The value isn’t in the earnings base now, but the huge power of the customer network over a very long life.
This is no accident, but a perfectly planned process by some of the brightest minds in corporate America. See the board and management calibre here.
We’ve written a note to Invast clients today advising them on how to trade Netflix in the coming months. The exact trading recommendation is privileged only to Invast clients. Netflix stock can be traded on Invast’s very competitive DMA CFD platform.
If you haven’t yet opened an account, you can self-navigate through our simplified account opening process here.
Chief Market Analyst
Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia. The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.
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