August 5, 2012
Chief Technology Officer Jeremy Phillips and Senior Technology Analyst Eric Bleeker discuss whether Netflix is a buy after its post-earnings implosion. After CEO Reed Hastings announced on Facebook that viewers had streamed 1 billion hours of Netflix entertainment in June, investors went rabid, believing Netflix's subscriber numbers would soar. The problem is, that 1 billion number was just a large and out-of-context figure that didn't really tie into subscriber strength. Before earnings, Eric and Jeremy had cautioned investors to ignore the number, as it had little relevance to Netflix's subscriber growth.
The company is now valued at just $3 billion, which on the surface isn't a huge number for a subscription business with nearly 22.7 million paying domestic streaming subs, 3 million paying international streaming subs, and still 9.2 million DVD subscribers.
Even with these big subscription numbers, Netflix might have become its own worst enemy. On the quarterly conference call, Hastings hinted at a possible partnership with HBO, which HBO was quick to shoot down. It seems Netflix has built up an "us-vs.-them" mentality with other media outlets, which creates difficulties in licensing content at costs that enable reasonable levels of profits. Moreso, Jeremy questions some of the measures the company stopped reporting. As an example, he doesn't feel confident in a subscription-based model that stopped reporting its churn rate of leaving customers. Even at these cheap valuations, neither Eric nor Jeremy will be taking the plunge and buying Netflix. To see their full thoughts, watch the following video.
Netflix is no longer the darling of Wall Street it once was. But with a potential 600 million customers around the world, could it soar high again? While Eric and Jeremy aren't currently buyers, opinions on the company range, and investors should be aware of the threats and opportunities in front of the company. Check out our premium report for both the bull and bear cases on Netflix. Just click here to start now.