Really, Netflix (NFLX)? Really?
With Netflix stock stagnant since August and a host of new and improved competition popping up all around you (not to mention a net-neutrality war that still hangs in the balance), you’re actually spending time on making — and this isn’t a misprint — high-tech socks?
Don’t misunderstand. These are some of the highest-tech socks anyone’s ever seen, and they do in a sort of a roundabout way relate to your current business model of delivering digital video to subscribers.
If there was ever a solution to a problem that didn’t exist though, this is it. Investors need not look at this product as a means of securing a bullish future for Netflix stock.
Meet the Newest “Wearable” Tech
First GoPro (GPRO) sold a body-mounted “action” video camera. More recently, Apple (AAPL) unveiled its smartwatch, which hooks up to an iPhone to do most everything the smartphone can do, as well as take your pulse.
This week, Netflix answered back with its own wearable technology … a sock that pauses the show or movie you’re watching on Netflix should you fall asleep in the middle of it.
As Netflix rationalized on its website when it introduced the garment, “Never again will you binge-watch yourself to sleep, only to wake up two seasons later wondering what happened,” as if it were too much trouble to pick up the remote and press the “Rewind” or “Back” button.
Another little detail — you have to knit the socks yourself, wiring in the tiny transmitter as you push and pull the knitting needles.
Oh yeah, you’ll also need a soldering iron and at least a little computer programming know-how, as the sensors sewn into the sock also need a bit of building of their own.
There’s no precise cost for the socks, as Netflix doesn’t sell them as a kit, or even the components used to make the socks. For those who’ve priced out the pieces though, the cost approaches $100, not to mention the time needed to knit the socks (nor the time needed to learn to knit).
The question remains, however … were cold feet and missed episodes really a problem anyone was having?
There’s NOT a Fine Line Between Innovation and Silliness
Just for the record, this isn’t exactly an invention Netflix came up with as a means of radically enhancing its stickiness and beefing up the value of Netflix stock. The company accepts public submissions of ideas to “create the ultimate Netflix experience,” and this was one of the unique ones to take on a life of its own.
On the other hand, it’s not as if the Netflix socks are just some fringe, black-market idea either. The company has put some time, effort and thought into presenting this idea as if the masses wanted such socks. Netflix even went as far as to provide knitting patterns to reflect particular television shows available on Netflix; the House of Cards sock pattern is a favorite.
In light of attention the idea was given, the company clearly doesn’t think it’s terribly ridiculous, even though it really is.
And yet, there’s a thread of brilliance in the idea, not because there’s any money or any real customer-acquisition benefit to it, but just because it’s such a strange, viral idea that it gets people saying the word “Netflix” over and over again.
That kind of subtle, almost imperceptible advertising is more powerful than one might ever imagine, as Amazon.com (AMZN) knows all too well. That’s why Amazon was willing to pull out all the stops well in front of Black Friday … to ensure it won the battle for mindshare headed into the busiest shopping period of the year.
All the same, whereas it was easy for Amazon to connect the dots and turn the buzz into recurring revenue, Netflix has a much bigger hurdle turning DIY socks into some sort of business-building tool.
Bottom Line for Netflix Stock
Socks or no socks, Netflix stock is now trading at a trailing price-to-earnings ratio of 311 and a forward-looking P/E of 453, and those valuations are based on what Netflix considers (for the time being anyway) normal operations.
Owners of NFLX have always argued it’s not about the present, but about the future. True as that may be, that future increasingly appears like a carrot hanging on a stick in front of investors; the company may never actually reach it.
Reasons for that doubt surrounding Netflix stock have long-included similar services from HBO and an always-improving on-demand choice of programs from cable services like Time-Warner Cable (TWC).
Disney (DIS) and Alibaba (BABA) fired a major shot across Netflix’s bow this week, however, announcing a distribution partnership for the Chinese market.
Maybe Netflix should worry more about business and less about socks.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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