Buy, Sell Or Hold Netflix?


  • Netflix reported numbers last night that beat on the bottom-line but came in-line on the top.
  • Netflix missed on subscribers estimates for Q1 but raised guidance for net adds in Q2.
  • Bearish Wall Street analysts remain bearish, and the bullish remain bullish.

Netflix reported numbers last night that were a mixed bag on a couple fronts.

The company reported earnings of $0.40 per share on revenues of $2.64 billion for the March quarter. Wall Street was expecting earnings of $0.37 per share on revenues of $2.64 billion. So a beat on earnings and in-line on revenues.

Netflix added 4.95 million streaming subscribers in Q1 on a worldwide basis versus its own guidance of 5.2 million net additions for the quarter ended in March. So a miss on net subscribers additions.

The company said that they added 1.42 million subscribers domestically and 3.53 million subscribers overseas in the quarter.

For the current quarter ending in June, Netflix said that they expect to add 3.2 million subscribers globally split between 600k here at home and 2.6 million internationally. In addition, the company said that they expect revenues of $2.76 billion and earnings of $0.15 per share for the June quarter. The Street was expecting earnings of $0.24 per share on revenues of $2.76 billion for the June quarter.

So like I said at the onset, a mixed bag but one that favors the bullish side to an extent. Subscribers added in Q1 and subscribers guidance for Q2, when combined, came in higher than even the highest expectations on the Street and as far as most shareholders are concerned, subscribers is what the company is valued at like Facebook is valued at its number of global users who pay zero to use that service.

The question we need to ask ourselves, long, short or agnostic is the following:

Is Netflix with approximately 100 million subscribers (company will hit that mark this weekend) paying about $10-$14 per month (depending on exchange rates) worth just 15% of what Facebook with its 2.5 billion monthly users paying absolutely zero is worth?

Yes, I am aware that Facebook is looking at ways to monetize its massive user base globally however till data it has not done so.

Does the phrase a bird in hand is worth two in the bush come to mind, maybe?

The answer to the one single question should determine your strategy going forward.

Is Netflix with a 100 million paying subscribers globally worth only $64 billion compared to Facebook with its 2.5 billion users globally that pay absolutely nothing but is worth $410 billion.

I happen to think that Netflix is way too cheap with its 100 million monthly paid user base compared to Facebook with its 2.5 billion user base that pays absolutely nothing.

Disclosure: I am/we are long NFLX, FB.
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