Netflix, Inc. Growth Depends Much On Original Content

Netflix, Inc. Growth Depends Much On Original Content
NFLX Photo by Matt Perreault

Netflix has released the third season of its popular series House of Cards with long term goals in mind. The streaming company has been focusing on offering original content, and according to BTIG analyst Rich Greenfield, the company’s “massive year” of original content is very important for future growth.

High-quality original content is key for Netflix

Netflix is expected to rise on the back of high-quality original programming, according to the analyst.

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“If you look at the number of shows, basically every four weeks we’re going to have something new and fresh to watch on Netflix with House of Cards-like quality,” he told to CNBC.

Greenfield also analyzed the impact of House of Cards’ streaming on Netflix, noting that the return of the show last year boosted new sign ups. This, according to the analyst, is reasonable considering the promotion and hype around the first season of the original show.

Greenfield has assigned a Buy rating on the stock with a price target of $600, which 33% more than the Street’s average rating and around 25% higher than the current price of the company’s shares.

Rising investment in original content

The online streaming company has clearly laid out its plan for increased spending on original content. The online streaming company noted that its 320 hours of original programming in 2015 actually cost less than most of its licensed content.

In a recent letter to investors, the company mentioned that the percentage of spending on original content will extend for the next several years. “This will mean more cash usage, which means more debt.”

Netflix’s spending has been a point of concern for Wall Street. Wedbush managing director Michael Pachter, who has an Underperform rating on the stock, recently noted that increasing competition will force the company to spend more on marketing for its original programs. The analyst noted that profitability may not be a concern for investors now, but it will be at some point. He added that, when such a time comes, then Netflix shares could see a decline.

On Friday, Netflix closed down 1.68% at $474.91, while year to date, the stock is up by almost 40%.

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