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Netflix, Inc. (NFLX) Stock Just Can’t Justify Its Valuation

Things are looking up at NFLX, but not enough to explain a 182X multiple

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The story with Netflix, Inc. (NASDAQ:NFLX) doesn’t really change that much from quarter to quarter. Nevertheless, the market continues to behave as if NFLX stock is somehow this massive untapped gold mine, given its assigned valuation. Yet if you examine the financials, Netflix continues to be valued not merely at insane prices, but at prices that do not even reflect the most fantastical of fantasies.

The media focuses on subscriber additions, but I consider that to be a useless number that has no meaning in a vacuum. The question is how much it cost to get those subscribers and how much they add to the bottom line for NFLX stock.

Download the spreadsheet from the Netflix stock investor relations website to follow along.

NFLX Stock by the Numbers

Domestic streaming paid memberships grew by 3.6 million, which was less than the 5.4 million from Q1 of FY15 to Q1 of FY16. However, NFLX is juicing more money out of these subscribers — $29.77 this year vs. $24.42 in 2015. That’s great news. Also good news is the contribution profit per subscriber is $12.26 vs. $7.75.

I confess surprise that NFLX stock is finally seeing some profit on the international side. As I’ve written before, I was skeptical that international consumers would care all that much about Netflix. Cultures are very different than in the U.S., as far as binge-watching and how people spend their social time.

Still, paid memberships have grown from 19.3 million in Q1 of 2015 to 45 million in this quarter. That led to the first international quarterly profit for NFLX stock of $42.6 million. The costs of acquisition are also slightly declining, from $24.89 to $22.31, but still substantially above the $17.51 in the U.S.

Domestic DVD lost another 800,000 subscribers, leaving it with about 4 million. Figure another 3 years and that division will be done. I the meantime, it did contribute $60 million in profit.

At the bottom line, after backing out other expenses, NFLX stock showed operating income of $257 million and net income of $178 million, for TTM net income of $338 million — and a stock valuation of $61.7 billion, or 182x net income. LOL.

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