In this video, Blake Bos reviews some key financial metrics for Netflix. The latest earnings report exceeded expectations for both revenues and income. However, The Big Picture is less than reassuring. Netflix needs to add subscribers to improve its profit margins and reduce its content cost per subscriber. Currently, Netflix profit per subscriber has fallen from $48 to $23 over the past few years.
Earnings rose on the strength of the increase in its subscriber base. To continue this earnings momentum, Netflix must continue adding new subscribers. There is competition out there -- for example, Amazon.com. How well Netflix can offer content at reasonable costs and increase subscribers will dictate how well it does in the future. Right now, Blake sees limited safety with Netflix at its current prices. He's staying out until the company demonstrates improving financial performance.
The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. 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 The Motley Fool has released a 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. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.