Hi I'm Jimmy in this video
we're looking at Netflix ticker
symbol NFLX.
We're going to look at how Netflix
got to where they are today.
And if we think that Netflix
is stock is good at its
current price.
Hopefully we can get an idea of the
positives and the negatives that
Netflix is currently facing.
Okay so let's start with the basics
of Netflix's business.
So today Netflix is an online
subscription streaming service
that gives you access to shows
movies documentaries things along
those lines all without commercials.
But that's not the way they begin.
So when Netflix first launched
back in 1997
well they were a dvd mail service
provider network one of the first
companies to try to do them.
And early on Netflix started growing
quite quickly as their primary
competition at this time was
blockbuster.
And this brings us to the early
profits of Netflix.
So like most startups Netflix
was unprofitable in their early
years. And right before they turned
profitable Netflix's stock
went public in 2002 for
fifteen dollars a share.
And interestingly in the first
year or so Netflix stock
didn't do all that much and
then it started running higher.
And by 2004 Netflix
his stock was up above 70 dollars
per share. Then Netflix did a two
for one stock split and up
until about 2009 their stock didn't
do much of anything after the stock
split.
But this is where things get
interesting for Netflix.
So this is a long term chart of
profits for Netflix.
And as we could see their profits
have ramped up significantly
in the past couple of years.
And to make it a bit easy to see
let's switch over the long term
revenue chart.
So in 2007 Netflix
launched their streaming service.
Now it seems that they didn't start
reporting revenue from their
streaming service until 2010
when they reported a mere four
million dollars in revenue.
But as we can see that all started
to change. And by 2012
Netflix is streaming service revenue
was becoming a thing.
As Netflix was the
leader in the streaming service
space and right around the same time
something else began to happen.
That spurred Netflix is amazing
growth in their stock price as well
as some questions as to whether or
not buying Netflix is stock today
is a good move.
So in 2013 Netflix decided
that creating their own content
would be the best move for
the long term sustainability of
Netflix's business.
Netflix kicked off their first
series with House of Cards in 2013
followed just a few months later by
Orange Is The New Black.
Now these series along
with the growing popularity of their
streaming service in general helped
spur the revenue a ton
over the next couple of years from
2013 to 2014 revenue
jumped by more than 36 percent
than twenty nine percent than thirty
percent. And it's been growing at an
impressive clip every year since
then. So this brings us to a hurdle
that Netflix is facing.
So this is Netflix is debt going
back to 2012 and as we could see
they've been racking up a ton of
debt and knowing that they're
profitable.
I mean if we switch back to their
revenue well we can see that they
had over one point two billion
dollars in profits last year.
So going back to debt
the fact that they're racking up
this much debt while they're
profitable is a bit
of a concern in my eyes to
make this even more complicated.
Well now if we switch over to the
free cash flow while free
cash flow has been getting
progressively worse from year
to year now we could see
in the early years that up until
2012 well the free cash
flow was pretty good.
And then it started taking a turn.
What happened.
You guessed it they started creating
their own content.
Once they started producing their
own content while debt
has piled up quickly and free
cash flow has gotten significantly
worse as they've had to fund
the creation of this new content.
And this brings us to today.
So as we could see Netflix stock
hasn't done all that much over the
past year or so.
But for you to switch this to a five
year chart well here we can see
that Netflix is stockholders are
likely been quite happy over the
past few years.
So now the question is what do we
think is going to happen to Netflix
stock over the next couple of years.
So on the positive side some of the
content that Netflix has created has
really been great house of cards
had a good run.
Orange Is The New Black has been
good. Stranger things
narcos Ozark well they've
all been driving in new subscribers
to the Netflix platform
and I'm guessing that Netflix will
continue to do a good job of
creating new content and therefore
driving new subscribers.
On the negative side as we saw it
cost them a fortune to run this type
of business and as awesome as it is
that Netflix is profitable from
a profit from an earnings per share
basis or the fact that they have to
keep raising money to create
content could eventually
be a really big problem for them
because at the end of the day they
almost have to continue to create
content.
Illustrate Disney.
One of my favorite companies while
they're getting ready to launch the
Disney plus platform and
Disney plus is going to be a real
force in the streaming industry.
Don't forget of all the outside of
all the Disney movies and Disney
shows that Disney already has.
Well they also have Pixar Marvel
Star Wars are they on National
Geographic.
Plus they have a huge
pile of movies and shows
that they've already created.
That is not going to be available on
Netflix.
Plus there's Warner media
and they're launching in 2020 I
believe it's another streaming
platform and they've got a ton of
content. They have HBO they have
Cinemax they have the Warner
Brothers networks and
that list goes on his own as well.
Now they're under AT&T.
So in my mind
I think that this is a real problem
for Netflix because clearly
content is going to be very
important to keeping
subscribers on board.
But you have companies like Disney
and AT&T that generate a
ton of cash in their other
lines of business that allow for
them to fund this particular part
of their business so they can
afford. If it did go negative for
them they can afford it for a longer
most likely longer than did the
Netflix can.
So ultimately the question is not
can Netflix make the content
necessary to compete with Disney or
AT&T.
Clearly they can make some great
content but to me
the question is can they sustain
themselves long enough to
contend as the big guys
enter the market and ultimately
these big guys are coming into
Netflix is home territory
and it's likely they're going to do
pretty good.
And I think the answer to the
question as to whether or not
Netflix can sustain themselves.
I think we need to make a few
assumptions.
So the question is will customers
of Netflix simply add
the Disney streaming service to
their household budget or
when it comes out.
Do they cancel Netflix and jump all
over Disney instead or the
Warner media product or Apple
plus whenever that comes up because
if people cancel.
Well clearly this can spell long
term trouble for Netflix stock.
Well we actually got some insight on
this very topic.
So Netflix is last
earnings report.
Well Netflix had come out and said
they lost 100000 subscribers.
Now this wasn't a loss
from the previous year.
It was lost in the previous quarter.
But either way subscribers
were down for the quarter.
But some interesting things actually
happened in the second quarter that
may have led to the decrease
for Netflix.
So first off Netflix
didn't have any serious shows
any of their big shows drop in the
second quarter.
Meanwhile Game of Thrones
their final season went live
it started playing in the second
quarter. So the theory goes
that at least some portion of
Netflix customers may
have jumped off of Netflix and went
over to HBO for at least a
few months.
Now Netflix is management actually
raised their subscriber guidance for
both Q3 and Q4
since Stranger Things was just
recently released.
So far the cost conscious
customer.
Well it's easy enough for them to
in theory leave HBO and come over
as Netflix to watch whatever
shows are most popular
at that time or whatever shows the
most interested in seeing.
But if the global economy
would ever begin to struggle Well
it's likely that more people will
become cost conscious and suddenly
canceling could
be more of a common occurrence
among subscribers based
on their priority.
Now which one do they cancel cancel
Netflix or Disney or
HBO or any one of the other
streaming services that are out
there.
I guess that all depends on the
customer.
Either way I think that it's
becoming clear the hurdles
that Netflix is facing and
as much as I love their service and
I personally use it I
think that the real question is how
do they last long enough as these
heavy hitters enter the marketplace.
In my eyes even with the pullback
in the stock market and in
the stock price which happened by
the way because of the Q2 earnings
number well even with that pullback
I'm not sure it makes sense to get
involved at least for a few
quarters. I want to see what happens
with the Disney streaming platform.
Does Netflix see a bigger
hit there than they expected.
Now on the positive side Netflix
isn't sitting around doing nothing.
They're getting ready to launch
their own low cost mobile
only package to a larger
developing nations like India.
And this has the potential to bring
in a ton of revenue if it's
done correctly.
But what do you think.
Do you think that Netflix is a good
buy right now at this
level or do
you think it makes sense to sit and
wait how customers react
to the new platforms being provided.
Let me know to think of the comments
below. If you haven't done so yet
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Thank you for stick with me all the
way to the end of the video.
I see in the next video.
Thanks.