With stream platform Netflix Inc. (NASDAQ: NFLX) adding an impressive 15.8 million subscribers this past quarter, compared to an estimated or expected nine million subscribers, the company’s share price has continued to surge higher. Many analysts have begun revising forward growth targets and raised their target prices for Netflix post-results, noting strong secular strength in streaming relative to the traditional media.
I do expect strong secular growth to continue in this sector. However, I do worry about two key factors I think most investors are missing right now. First, these numbers really aren't that great when one considers that roughly four billion people that were otherwise in the office everyday were stuck at home. 15 million people may seem like a lot, but in a global context, that's really nothing.
Second, I see a real problem in the ability of Netflix to continue to roll out content at a fast enough pace over time. The fact that movie studios, including Netflix’s content creation department, has largely been shut down means that once Netflix’s pipeline of content runs out, there will be a wait until more content will be audience-ready.
There are still a number of programs in the queue that are in the editing stage that will be released. But, barring those, there will be content gap or a rationing of new content which will put the “Netflix and chill” binge watchers out of commission for awhile.
Any sort of membership loss related to cost-cutting is due to the fact that more than 40 million people in North America are now out of work.
Another reason is related to a lack of new content. Both factors could provide material short-term downside. I'd steer clear of Netflix for now.
Invest wisely, my friends.
