Why Netflix Could Be in Trouble Next Year

High multiples are okay to pay for a growing stock, and although Netflix, Inc. (NASDAQ:NFLX) has done a great job of increasing its sales, the company is going to face a big challenge next year. Many companies are opting for their own streaming services and Netflix is going to have to focus on content and beating some big names in the industry at their own game.

One specifically, is Walt Disney Co (NYSE:DIS), which is the cream of the crop when it comes to content. With Disney looking to pull its content from Netflix and start its own streaming service in 2019, Netflix will face big competition against a company that has produced many masterpieces and that also owns the popular Marvel brand.

This is going to be a big test for Netflix and whether its content can stand on its own against a company like Disney that has made a name for itself for producing movies with both remarkable visuals and compelling storylines.

While Netflix is continuing to grow, it is losing a lot of cash in order to do so. Its home market is saturated and most of the growth opportunities exist around the world.

The troubling trend for Netflix is that it is burning through a lot of cash in order to fund this growth. In 2017, the company used $1.8 million in cash from operating activities, which is up from $1.5 million the previous year and $749 million the year before that.

As competition grows fiercer, Netflix could see even more cash burned for the sake of even less growth. Over the long term, Netflix is a stock that could be due for a big correction as it could stand to lose a lot of subscribers.