One of the most impressive companies to "watch" in recent years (some would say binge watch) is Netflix, Inc. (NASDAQ:NFLX). The technology company has experienced impressive stock price appreciation which has corresponded with global subscriber growth which has continued to exceed expectations. The company has begun a very costly but very successful campaign to create original content to drive subscriber growth numbers, a campaign which has translated into profitability and the prospect of improved profitability in the medium to long-term.
The long-term prospects of Netflix remain robust, and while I do not challenge many of the growth assumptions of the analysts covering Netflix (in fact, many of these assumptions appear to actually be on the conservative side), I do not necessarily agree that Netflix will have an easy time churning out profit in the medium to long-term due in part to the industry the media and entertainment company finds itself in. Simply put, I do not believe that Netflix has a moat wide enough to protect it from the very aggressive forces that intend to disrupt the company’s success.
Between the very deep pockets of Amazon.com, Inc. (NASDAQ: AMZN) and the development program that has been introduced to continue to introduce more original Amazon video content, and the recent announcement of Walt Disney Co. (NYSE: DIS) to pull all of the company’s original content off of the Netflix platform in the next couple years, I do not believe that the long-term headwinds with respect to Netflix’s business model are being fully priced into the company’s equity valuation at the moment.
Invest wisely, my friends.
