Netflix: The Knowledge Effect in Real-Time – Analysts Play Catch-up

Netflix: The Knowledge Effect in Real-Time

One of the unique consequences of the Knowledge Effect is the analyst “catch-up” period. This is a period of time when analysts have underappreciated the growth potential of the unique capital base of a highly innovative company and are forced to quickly move up estimates and stock price targets. Netflix, which is a Knowledge Leader, investments 8.6% of its sales in R&D and another 4.8% of its sales on other intangible investments. Overall, they spend over 5x as much on intangible investments as they do on traditional capex. When we look at Netflix using our intangible-adjusted financial statements, we see that Netflix has 20%, or over $1.5 billion, more long-term assets than what they report in their traditional financial statements. Because innovative investments are expensed rather than capitalized according to SFAS #2, knowledge intensive companies like Netflix are prone to wild swings in earnings estimates and price targets since such a large portion of its asset base is invisible to the greater financial community.

In this FT post, the catch-up period is documented in real-time.

(source: Financial Times)

Disclosure: The above mentioned security may be in our current portfolio. Please refer to our website for a current list of our holdings – http://www.gavekalcapital.com/ucits/