With great anticipation, reports indicate that Netflix, Inc. has become the best performing stock on the S&P 500 for the year. It also attained the level of second most expensive. Despite the good news, there are also negative things to consider about the company.
What potential issues are there about Netflix? Experts say if you dig deep enough there are concerns about the company. There is a negative amount of free cash flow and the company has seen a significant increase the amount of liabilities of new movie and television show content. The company has also seen a significant increase in the number of subscribers who are not paying for their service.
However, Bloomberg reports “perceived limits on customer numbers and the high price of shares have led 26 of the 37 Bloomberg-listed analysts covering the stock to advise investors to sell or hold stakes.”
Netflix, which has a capitalization of almost $15 billion, spends about $500 million quarterly on content. Company filings show that the company has run a deficit free cash flow for the last two quarters.
When it comes to license streaming content and binding contracts, the company has $5.7 billion to pay out, with estimates indicating about $2.4 billion of that is due and payable in less than a year. The remaining $2.7 billion is due within the next one to three year time period.
Just last December, the company agreed to pay $350 million annually to have access to Walt Disney Co. movies, but those are estimates from outside analysts because Netflix declines to release such data.
One theory is that Netflix will address costs by raising subscription rates. However, when Netflix raised rates in 2011, there were as many as 800,000 subscriptions canceled. Stock had seen a high of $299 during that year and it then dropped to $63.86.
Currently, Netflix stock is gaining ground. The company’s closing high for 52 weeks was on July 17, settling at $261.96. During the second quarter, the company reported having obtained 630,000 new U.S. Internet Netflix subscribers for services.
Analysts have mixed feelings on whether to hold or sell stock in the movie and television giant at this time. When rates increase, subscribers may dwindle and the stock may suffer for a while, but again, it may on the rebound again soon. Investors seem to show an exciting enthusiasm for the stock regardless of the concerns.
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