What started as a DVD-by-mail operation has grown into an online streaming service and production company. Netflix has joined the ranks of rivals Google, Amazon and HBO, but this year its stock has been sluggish.
The stock dragged after Netflix missed its optimistic U.S. subscriber targets. To grow further, the company is seeking subscribers abroad and creating more original content.
Netflix has $6.78 billion in revenue, $123 million in profits and a P/E ratio of 296.50. Yet its stock has done poorly in the market.
Netflix closed today at $95.83 and then yesterday at $94.88 as the second S&P 500 loser. The stock has not surpassed December’s peak of $130.93, after which it dove down to $82.79 until February when it picked up again. It was most likely a reaction to disappointing subscription results.
In January, Netflix opened up its subscription service to 130 countries (it is now present in 190) but international subscriber growth was lower than expected for the second quarter. Netflix aimed to get 2.5 million subscribers and came up short at 1.7 million; and the stock suffered.
As a tech and media company, Netflix is up against HBO, Hulu and Apple for a larger market share of subscribers. In an effort to grow, the company has expanded globally and is investing heavily in its original content.
Netflix wants 50 percent of its content to be original and plans on spending $5 billion on a profit and loss basis and $6 million in cash on original content this year.
“We’ve been on a multiyear transition and evolution toward more of our own content,” said Chief Financial Officer David Wells at this week’s Goldman Sachs’ Communacopia conference.
Netflix won nine Emmys for its original content this year but that pales in comparison to HBO, which dominated the Emmy Awards Show with 22 wins. Netflix has serious room to grow if it’s going close the lead with HBO.
Mark Mahaney, lead internet analyst at RBC Capital Markets, believes that Netflix has been underperforming in the market but remains optimistic about it.
“We think it could be a $200 stock,” Mahaney told CNBC. “We think it’s going to double to be 150 to 150 million [global] subscribers in a couple of years.”
Netflix faces challenges in breaking into China, a major market of 1.36 billion people and a country where Google and Uber have failed to acquire a market share.
Unless Netflix can exceed expectations of global subscription members for Q3, the stock will continue to underperform this year.
Photo by Kara Chin