Netflix, Inc. (NASDAQ:NFLX) shot up a few weeks ago after releasing an impressive pop in earnings. But since then, Netflix stock has been pretty stagnant.
The online movie and television show powerhouse shows a pretty impressive growth story; After their earnings, NFLX stock share prices soared above $400. But, where is Netflix going now? Well, their growth is clearly slowing, and the stock itself hasn’t actually done much since that impressive earnings pop.
Netflix has big plans for 2015, but these plans come with costs. That means NFLX stock will face more obstacles, and that’s something that can’t be good for NFLX stock and investors.
Let’s take a look at what NFLX is planning for 2015, and why these plans might not be as great for investors as it might seem on the surface.
New Netflix Original Content Costly
As we know, Netflix original series like Orange is the New Black and House of Cards, both launched in 2012, were major hits and a main part of the NFLX growth story. But creating original content is costly, and the company might not see revenue grow as quickly in 2015.
When Netflix creates original content, it’s expensed over the period it’s allowed to stream. As a result, spending on Netflix original series causes a drag in cash flow.
And although NFLX customers feel good about Netflix content, it’s not a promise that their new shows will succeed.
NFLX announced that they will be working with Nintendo (OCTPK:NTDOY) to create a series based on the video game Zelda. This type of television show differs completely in genre compared to the successful Netflix original series. So, NFLX is taking some risk with its original series that might not ultimately be worth the potential rewards in the end.
NFLX Stock Faces International Competition
Netflix has big plans to spread to the Asian market, but it might not be as easy for them to take off there as they have in other international endeavors.
Netflix already has a competitor called HOOQ, which is expected to be launched in the beginning of the first quarter in 2015. Behind this launch are some big-name Asian companies including Sony Corp (ADR) (NYSE:SNE) and Time Warner Inc. (NYSE:TWX). The service will offer 10,000 movies and television series, much like the Netflix model.
With domestic growth slowing and international potential a big reason investors are buying NFLX stock now, the threat of competition eating into overseas sales is an important one for investors to acknowledge.
Netflix Shoulders Large Debts
Netflix has big plans for the next few years, and they need money to make these things happen.
Netflix plans to borrow $1.5 billion in debt. This has many analysts and investors concerned, and rightfully so. This debt has a steep 6% interest rate, and even caused analysts to downgrade NFLX stock.
Servicing this debt will result in less free cash flow, and could hurt Netflix stock in regards to longer-term growth plans.
Sure, cable is dying and we will be watching all of our television shows and movies through mediums like Netflix in a few years. But, the question is not whether or not we like watching Netflix. The question is, where is Netflix stock going in 2015.
NFLX stock remains stagnant now, and it seems like it will stay that way for a while.
With costly new content, international competition and debt to pay off with huge amounts of interest, Netflix might have made some choices for the upcoming year that will prevent NFLX stock from larger growth.
As of this writing, Dana Kobilinsky did not hold a position in any of the aforementioned securities.
