Netflix, Inc. (NASDAQ:NFLX) surpassed all other to become the best performing U.S. stock in the Standard & Poor’s 500 Index, in 2013. However, the stock is also the second most expensive one, which is not justified, if one digs deep in the company filings.
Problems with Netflix
One can gather from the company filings that it has negative cash flow, increasing liabilities for the latest movie and TV show content and hike in unpaid subscribers. 26 analysts at Bloomberg out of total 37 have started giving hold or sell advice to the investors.
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Richard Greenfield of BTIG LLC witnessed the Netflix, Inc. (NASDAQ:NFLX) stock rising above his April target of $250 and will likely revise the target price after the results. As per the company filings, Netflix has a market capitalization of $15 billion, and it pays $500 million per quarter, despite the fact that the company’s cash flow has been negative over the past two quarters.
Netflix, Inc. (NASDAQ:NFLX) is in binding contracts worth $5.7 billion to pay for the license streaming content. Out of total payment due, Netflix will have to pay around $2.4 billion in less than a year, as per its quarter filing. Another $2.7 billion is spread over three years.
Netflix, Inc. (NASDAQ:NFLX) subscriber base has been a matter of debate. As of March 31, out of 36.3 million US and International online members, 5.7 percent were unpaid subscribers–4.8 percent of online and DVD customers.
According to SNL Kagan Netflix, Inc. (NASDAQ:NFLX) will outperform HBO in paid US subscribers within the coming two quarters. Netflix did not disclose the amount it was spending on content every quarter despite SEC serving it two letters. According to the analysts Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL) or Comcast Corporation (NASDAQ:CMCSA) may pose a challenge to Netflix in future.
Investors don’t care
However, investors seem to be indifferent to the analyst’s views and are investing in Netflix.
According to Wedbush Securities Inc managing director, Michael Pachter investors find vast investment and profit opportunities in the online businesses like Amazon.com, Inc. (NASDAQ:AMZN), which sold $16 billion of merchandise in the first quarter. He added that investors are less likely to dig into the financials of these companies when these online giants are riding on the success.
“Netflix looks like Amazon to most investors,” said Pachter, who rates the No. 1 Internet video subscription service “Underperform.”
CEO Hastings said that Netflix “is leading the way” towards the Internet TV. Last fiscal, Netflix, Inc. (NASDAQ:NFLX) posted revenue worth $3.6 billion, increase from $3.2 billion a year before that. It reported profit of $17.2 million in 2012. In 2011, Netflix earned a record profit in $226.1 million.
On July 17, Netflix, Inc. (NASDAQ:NFLX) stocks soared to a 52 week high closing at $267.92 and are trading at 383 times 12 month profit. Only Alcoa Inc (NYSE:AA) could outperform Netflix in the S&P 500, according to data compiled by Bloomberg. Netflix has performed best in S&P by posting a gain of 185 percent this year.