The demand for online video streaming is endless. Alphabet’s (NASDAQ: GOOGL) Youtube popularized watching short clips but it was Netflix’s (NASDAQ: NFLX) movie streaming offering that continues to grow. Investors are so enamored with NFLX stock that its 210x P/E and 77x forward P/E, and a 3.3x PEG, appear justified. The stock is up 83% in 2018 alone. At its $153.2 billion market cap, the company is slightly ahead of Disney (NYSE: DIS) and well ahead of Comcast’s (NASDAQ: CMCSA) $146 billion market cap.
The future value of NFLX stock is obvious: it will keep going up.
Disney’s momentum for solid revenue growth from the Star Wars franchise could be on pause. Disney backed off from issuing a forecast for weekend box office ticket sales for Solo: A Star Wars Story. One does not judge a movie from its trailer but the story did not look compelling. Metacritic scored the movie a 63% and Rotten Tomatoes gave a 71%.
It now looks that Netflix’s paltry 1.63x debt/equity, compared to Disney’s more favorable 0.55x debt/equity, will lever the former’s growth. Netflix’s model is working: sell debt to buy content and drive subscribers. With subscription growth of in the last quarter alone, from 117.6M to 125M subscribers, the service is resonating with viewers. It is buying shows that people want. And Netflix may raise monthly fees at any time, sharply growing cash flow if needed.
