Netflix Inc. (NFLX) Gains, but Content Costs May Kill Profit Growth

Netflix Inc (NASDAQ:NFLX)

Netflix Inc.  is probably the most-loved stock on Wall Street now, and the stock deserves all the goodwill because of its impressive performance. In the year-to-date period, Netflix has gained 118.02% to become the best performing stock in the S&P 500 Index. The stock closed with gains of 2.47% at $114.31 last Friday. As at 6:26AM in pre-market trading today, Netflix has gained 0.65% and the stock is on track to open above a $115 trading price this morning.


Worlds Largest TV Network

On Saturday, Digital Trends provided a report on how Netflix is on track to become the biggest TV network in the world. Highlights of the report (by the numbers) are presented below:

Netflix boast 65M+ subscribers and analysts are predicting that it will have 70M subscribers by the end of this year.

Netflix users stream more than 3 billion hours of video every month. FBR Capital Markets was quoted in in a Variety report that those Netflix users watched 10 billion hours of content in Q1 2015.

FBR Capital ran a survey in which people were asked to choose between Netflix and cable TV, 57% of respondents choose Netflix.

Research firm, Sandvine, posits that Netflix accounts for 36.5% of ALL Internet Bandwidth used in North American during peak hours in May. Google’s YouTube for all its popularity and amazing content was second to Netflix in bandwidth usage of 15.6%.

Netflix has a market cap of $48.51B and Wall Street thinks it is worth $32.9B, which is above the $30.6B value of CBS.

Netflix Dreams Becoming A Reality

Netflix is already chasing its dream to become the biggest TV network. The firm’s goal is to be in 200 countries by 2016, with expected subscriber growth totaling 180 million by 2020.

The best part is that Netflix  is also working on building content in order to keep users locked on its platform. The firm is working with an army of indie producers in a bid that will provide a constant source of fresh content to users.

The firm is aggressively chasing overseas growth in order to ensure user growth as U.S. market continues to mature. Netflix is already in much of Western Europe and it is outpacing local rivals in Australia and New Zealand. The firm is also planning to move into Japan, India and China. More so, Netflix is courting the Latin American market with a fresh dose of Spanish content.

There Will Always be Naysayers

The most bearish case for Netflix is from the research house, Wedbush. Analysts at Wedbush believe that “content costs for the streamer will be a source of concern in the future”.

Analysts at VETR are also not smitten with the prospects of the stock. They downgraded Netflix from a “Buy” rating to a “Hold” rating and they have a $114.80 price target on the stock.

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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