ii view: Netflix welcomes competition
Short-term pain, long-term gain? Should investors switch on to Netflix shares?
18th October 2019 08:12
by Keith Bowman from interactive investor
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Short-term pain, long-term gain? Should investors switch on to Netflix shares?
Third-quarter results
- Revenue up 31% to $5.2 billion
- Net income up 65% to $665 million
- Earnings per share up 65% to $1.47
- Paid net adds totalled 6.8 million up from 6.1 million in Q3 2018
ii round-up:
The company started in 1997 as a DVD-rental-by-mail firm. It began streaming in the US in 2007 and internationally in 2010. It produced its first own original tv series in 2013 and became global in 2016.
Today internet TV service Netflix (NASDAQ:NFLX) has over 150 million paying flat-fee unlimited viewing subscribers. Its product is available virtually everywhere in the world except in China.
For a round-up of these third quarter results, please click here.
ii view:
In a relatively short time, Netflix has become a household name. The ability to stream and watch drama series or movies at a time convenient to the consumer holds great appeal. The company's expansion overseas has been rapid, with revenues now split almost evenly between the US and international. But there is a growing threat from rival streaming services, particularly entertainment giant Walt Disney (NYSE:DIS), which launches its own version Disney Plus in November, and Apple's (NASDAQ:AAPL) Apple TV+.
Lastest results appeared to see Netflix embracing the new competition. Although flagging modest headwinds to its near-term growth, it now believes the likely outcome will be to accelerate the shift from linear TV to on demand consumption, putting cable TV companies under further pressure.
For investors, valuing a high-growth stock is never easy. Netflix does now generate a profit, offering a firmer basis on which to try and value its shares. Sat on a one-year prospective price/earnings (PE) ratio of around 90, against a three-year average of over 180 suggests the removal of some early enthusiasm. Although not directly comparable, Disney sits on a one-year prospective PE ratio of under 25. Amazon (NASDAQ:AMZN) is similarly at around 75.
Positives:
- Revenues and paid memberships still rising
- New partnership with AT&T in the US to integrate Netflix into its set-top box
Negatives:
- Outlook comments pointed to near term headwinds
- Growing competition from Disney, Apple and others
The average rating of stock market analysts:
Buy
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