Tuesday, 18 October 2016

NFLX - the upside down

Whilst the broader market closed moderately higher, there was extremely powerful strength in Netflix (NFLX), which settled +19.1% @ $118.87, the best daily close since late Dec'2015. Next term outlook is bearish, as the broader market looks highly vulnerable to a brief foray <sp'2100.

NFLX, monthly (inv), 16yr, rainbow

*if you have never seen 'Stranger Things', you're missing out, and you probably will not get the reference via the above kooky chart.

NFLX, daily

NFLX, monthly


Earnings certainly impressed the market, as subscriber growth was good in both the US and elsewhere.

The problem - as many recognise, is that NFLX is a cash burner. Its kinda ironic that despite such great numbers, NFLX noted it will still need to raise new funds - via debt, in the near term, to keep funding the production of original content.

The recent move back above the $100 threshold was significant. Today's move wasn't exactly a surprise.

In the mid/long term, NFLX will be highly vulnerable to competition. Further, what happens when the next recession hits? Such subscriptions will be the first to get cancelled by the recently unemployed.

An expensive stock

With quarterly earnings of 12 cents, if you round that up to 50 cents a year, that gives a PE of around 240. Such a ludicrous valuation belongs in the upside down.

As I'll keep saying, I personally think Netflix is now producing some of the most innovative and best shows ever made. Whether its the Marvel universe of Daredevil, Jessica Jones, or the recent Luke Cage, or the ground breaking Sense8 or nostalgia of Stranger Things, its pretty incredible how bold Netflix has been.

NFLX just need to keep building their customer base and raising those subscription prices for long term survivability. That is easier said than done of course.

yours truly...
                   in London.. which after sundown, can feel like living in the upside down.