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Cryptos Wouldn’t Even Dream It: See What You’d Have if You Invested $1k in Netflix in 2007

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by Teuta Franjkovic · 4 min read
Cryptos Wouldn’t Even Dream It: See What You’d Have if You Invested $1k in Netflix in 2007
Photo: Pixabay

Yesterday three major U.S. indices were solidly in the green. The Dow Jones was up more than 200 points and Goldman Sachs put earnings estimates to shame reporting a net interest income increase of 10% YOY for the quarter, and 28% for the full year.

This comes even with higher interest rates, which hurts loan demand. Bank of America Corp also beat earnings estimates, reporting a 7.3% increase year-over-year in net interest income for the quarter. The same metric rose more than 5% for the full year of 2018.

The movie streaming giant Netflix Inc. just raised prices on several of its subscription plans, which helped the stock rally Wednesday. Look out for forward looking subscription guidance as a result of the price increases. Let’s take a closer look to that.

We already wrote of how, if you had invested in Netflix in 2007, when it first began its streaming service, that investment could have paid off big time: A $1,000 investment would be worth more than $90,000 as of Jan. 15, according to calculations.

Netflix has obviously become one of the best investments lately (especially if to consider its ROI). Even cryptos, which hit record-highs in 2017 are not so promising, especially now, when BTC fell from almost 20k to under 4k. In 2018, the company was the best performing of what are called the FAANG stocks: Facebook, Apple, Amazon, Netflix and Google.

While the company’s stock has performed well over the years, any individual stock can over- or under-perform and past returns do not predict future results.

The fact is that Netflix is expected to have spent $13 billion on content for the full year of 2018. In order to outbid the rest of the show industry, that was the only reasonable thing to do. Exactly that is what drives subscriber growth, and, together with that, drives the price of its shares.

The competitors are clear: Amazon Prime may be posing the biggest ‘threat’ together with Hulu and the Walt Disney Company. However, we shouldn’t forget Alphabet that is also a player in the space through YouTube, and the fact that even Walmart has expressed an interest in capturing its share of the cake.

Laura Martin, an analyst at investment-banking and asset-management firm Needham & Company said:

“I think Netflix is in trouble when the big guys start coming after them.”

This is the fourth time the company has raised its subscription prices since it launched its streaming service, with the most recent in October 2017. Shares jumped 3 percent that day.

Wall Street analysts also don’t think this price hike will be a deterrent, saying customers are likely willing to pay more. And, in the past, most fans have not been put off by higher costs. Last quarter, Netflix reported domestic subscriber growth of nearly 11 percent year over year, for a final total of 58 million U.S. subscribers.

Cracking Down on Account Sharing

Now we are heading to another interesting point: subscribers. Netflix was said to have around 137 million global subscribers several months ago, which has put the firm close to meeting its 147 million global subscriber target it established in the third quarter of 2018.

Many analysts including Michael Olson at PiperJaffray have expressed optimism toward the highly anticipated earnings report release of Netflix on Thursday.

Based on the numbers that were released in last fall, analysts generally believe that the company will be able to surpass Wall Street expectations, becoming the first internet company to do so in 2019.

According to newest report, the movie Bird Box was viewed by 45 million viewers in the first week of release, at least by 35 percent of the global viewership of the platform. Bird Box, the biggest hit of Netflix to date, has established a precedent for all future films on the platform. Some have suggested that the high numbers generated by the film will ease the process of obtaining more funding to introduce more high profile films and programs in the months to come.

In an interview, Steelhouse CEO Mark Douglas said that Netflix should crack down on account sharing, which he argues could be construed as an effective price increase per user that would generate more revenue.

Douglas notes that rivals like Hulu lock down accounts to prohibit sharing, although Hulu’s approach is to limit the number of simultaneous streams. Hulu’s main plans only allow a single active stream per account, while its Live TV service offers two simultaneous streams. Netflix’s most popular plan allows two streams, while its Premium tier includes four.

Speaking at CES 2016, CEO Reed Hastings even outright condoned the practice. Account sharing is “a positive thing, not a negative thing,” according to Hastings. The chief executive believes that account sharing is comparable to free advertising or free trials, giving prospective members a taste of the content and hoping they sign up on their own. “It really hasn’t been a problem,” Hastings added.

However, it seems that over time, as Netflix’s revenue growth decelerates, investors may demand more from a company trading at 125 times earnings, and it may have to start cracking down.

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Teuta Franjkovic

Experienced creative professional focusing on financial and political analysis, editing daily newspapers and news sites, economical and political journalism, consulting, PR and Marketing. Teuta’s passion is to create new opportunities and bring people together.

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