Netflix ‘tipping point’ metrics: True or fake news?

The week has been full of Netflix news: Impressive results and revenues up 30 per cent, an extra $1 billion in acquisition spend and plans from Nielsen that it will start measuring some Netflix viewing patterns. Of course, Netflix (and its rivals) know only too well what their actual consumption numbers are.

As well as putting another few million dollars in CEO Reed Hastings’ pocket via cash bonuses and stock options (and pushing him further up the Forbes richest 400 Americans) and a personal net worth said to top $2.2 billion, what does all this mean for the net-caster?

Netflix’s numbers are spectacular – and seemingly unstoppable. Earlier this month it raised its subscriber prices by a dollar or so per month, and the stock price carried on rising to stratospheric levels. A share that was valued at just $9.90 in December 2011 to this week’s $202 and a market capitalisation of $84.7 billion.

With subscriber numbers on an ever-rising roll, few doubt that it might reach 120 million subs over this next year. Eighty new films commissioned and a budget for films, series, comedy specials for 2018 of around $7 billion-$8 billion, the impact is going to be considerable. And coming down the line is The Crown, the next series of House of Cards, as well as Stranger Things 2 available in time for Halloween.

While it is ‘true’ that the market seems to love Netflix’s financials, it is worth reading analyst Michael Nathanson’s research for a more measured approach. First, Nathanson agrees that while North American net subs additions of 1.02 million were good, they were below his own expectations, while ‘international’ numbers (up 3.97 million) were again some 172,000 below forecasts. In fairness, and with increased competition from Netflix’s aggressive competitors, there are only so many new US subs out there to be captured in an increasingly mature market. But Netflix is expanding internationally, and adding local language titles to its comprehensive roster of established hits.

For 2018 Nathanson is forecasting Revenues for Netflix up 27.9 per cent to around $14.9 billion (and up another 20.5 per cent for 2019 to $18 billion).

The overall Netflix numbers prompted positive responses from a number of other analysts, not least Bank of America which raised its price target for Netflix to an impressive $225 per share. They were not the highest – although there were also lower numbers from some analysts. Cantor Fitzgerald forecast $235 a share.

CEO Hastings, despite selling $20 million-worth of stock back in July still owns 5.8 million shares. You do the math.

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