It’s a bit difficult to get a handle on what is moving the Netflix (NFLX) stock price these days, whether it’s company news or market volatility, the truth is that it doesn’t actually matter.
If there’s any one thing that matters to Netflix stock, losing its deal with Epix is not one of them.
For those who are unfamiliar, Epix is a movie channel that began as a joint venture between the Viacom (VIA) subdivision Paramount Pictures (privately held by MGM) and Lions Gate Entertainment (LGF). It’s a premium cable and satellite television network that runs more than 15,000 movies from its partners, with plans to develop and produce original content.
But Netflix’s non-exclusive deal with Epix is coming to an end.
Netflix Stock: The Onus Is on NFLX to Craft Original Films
Over the past few years, Netflix has been on a mission to distinguish its streaming experience by offering exclusive and original content. The non-exlusive arrangement between NFLX and Epix meant that either Epix did not offer exclusivity, or that Netflix deemed the price to buy sole rights was not justifiable.
Even without Epix’s expansive movie universe, Netflix still offers a massive library of content and is not going to lose many, if any, subscribers as a result of a single channel’s worth of content. People with Netflix who really, really want Epix content can find it elsewhere, and it appears Hulu is going to be the beneficiary.
For those who own something like Roku, they have access to tons of content from all the streaming providers. They just aren’t going to cancel the premier service over something like this. Being an all-encompassing content brand was never the intention, as Netflix made clear in its manifesto:
“Netflix is a focused passion brand, not a do-everything brand: Starbucks (SBUX), not 7-Eleven; Southwest (LUV), not United (UAL); HBO, not Dish (DISH).”
As for Netflix stock, the company can redeploy the capital it would pay for those non-exclusive rights into more original content. That has also included picking up foreign series for domestic distribution and white labeling as Netflix content. So it is arguably an efficient use of capital.
And losing Epix doesn’t materially change the near-term revenue picture for gross-minded Netflix stockholders: People don’t sign up for Netflix because of Epix, they sign up because of original content, such as Orange Is the New Black, Daredevil and Unbreakable Kimmy Schmidt. Then there’s NFLX’s brand strength, as people are more likely to sign up for Netflix simply because it has become the face of streaming.
And because it doesn’t matter to revenue, it doesn’t matter to earnings … and it definitely doesn’t matter to investors with stock in NFLX, as earnings are not currently the reason to invest in Netflix stock.
No, the only thing that matters to NFLX right now is momentum. That’s it. Netflix stock is not trading on anything remotely related to earnings or discounted future cash flow. It isn’t trading on revenue growth, new territories, increases in subscriptions or what will happen in Season 4 of House of Cards, for that matter.
NFLX trades where it is because it is a momentum story, period.
As long as the momentum continues, the stock will continue to rise. As long as analysts put up stupid price targets like $160, the stock will rise. As long as it remains a volatile stock, it will fall, and then rise again, whether the market has a correction or a crash.
That’s all you need to know about Netflix stock.
As of this writing, Lawrence Meyers was long LGF.
