The market is big on Netflix at the moment. In this video, however, Fool analyst Blake Bos offers three reasons to avoid this company. First, Netflix operates in a hypercompetitive market. Second, content costs will likely eat away at revenues. Third, Netflix trades at 100 times earnings and doesn't have the deep, wide moat or industry dominance that, say, Amazon does to justify that high a price. Further, Amazon has almost 10 times the free cash flow as Netflix and can easily throw its weight around in this market. Netflix, therefore, doesn't have the financial clout to directly compete with Amazon.
The relevant video segment can be found between 17:48 and 22:23.
The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.