While Netflix, Inc. (NASDAQ:NFLX) executives are quick to downplay the $6 billion current fiscal year spend that will be topped by next year’s projected $8 billion original programming budget, it remains important for investors to honestly evaluate their comfort levels around the figures supporting NFLX stock.

Returns on content spending are still hard to lock down, far more art than science. Management can point to streaming hours as a proxy for engagement, but it’s difficult if not impossible to attribute a new user to a single investment in a show.

Instead, the NFLX stock value proposition for viewers comes from the library, the sheer vastness of its existing content in addition to the seemingly continuous slate of new programs NFLX has produced and developed in-house. So, it’s the aggregate entity on a sleek and user-friendly platform that people are paying for.

Disney Still No Threat to NFLX Stock

Walt Disney Co (NYSE:DIS) continues to be a concern for some analysts. I’ve taken another look, and to echo the words of Netflix’s Chief Content Officer, Ted Sarandos, “They’ve [Disney] created some really killer brands [but the IP is] not that exclusive … Netflix has The Defenders [for example].”

Between the timing (the two companies don’t “breakup” until 2019) and the ramp in NFLX’s own popular and critically-acclaimed shows, users are unlikely to defect when Disney and Netflix part ways. Netflix just isn’t that dependent on DIS.

With its slew of new content from documentaries to original scripted series to films directed by the best-in-class directors like Martin Scorsese, Netflix has demonstrated its credibility and willingness to bankroll content that traditional studios have passed, and thus, talent continues to pitch to them.

At the moment, it’s true that Netflix licenses more titles that it develops in-house, but per Sarandos, that should come to an even fifty-fifty split next year. Next year they’ll have 60 global series and 30 local-language series are in the works.

There is no similar platform that rivals NFLX’s dominance, for now. The existing library and license deals keep users busy mining for hidden gems and the new content and marketing efforts serve to entice new customers. This has been working effectively as evidenced by subscriber growth domestic and international.

NFLX Stock

The subscriber growth has the stock price keeps climbing and the P/E multiple keeps expanding skyward. The value proposition is undeniably compelling as new, high quality content gets added like clockwork. Given that value proposition, viewers are unlikely to be phased by the recent pricing increases.

The price increase from $9.99 to $ 10.99 per month for the basic plan and $11.99 to $13.99 per month for the premium plan (HBO Now charges a flat $14.99) reflects a confidence in the stickiness of the user base, which I am quick to mention in the context of a virtuous cycle.

More and better content leads to higher customer satisfaction and engagement, which in turn gives NFLX more specificity regarding valuable individual viewing habits. This then allows NFLX to more strategically and efficiently deploy capital towards licensing and producing content that will be popular with existing viewers.

NFLX Valuation

So long as NFLX continues to keep that virtuous cycle spinning, users will stick with them. But it’s by no means a moat. Large media companies have far larger IP libraries, deeper pockets, and a more sustainable cash cycle. They’ve been slow to move though, Hulu, notwithstanding.

But that’s not to say there isn’t the plausible possibility that they amp up their tech spending and get a product in fighting shape to give NFLX a real run for its money.

NFLX stock has been riding high on growth all year. But a percentage isn’t cash, doesn’t pay the bills, doesn’t necessarily return long-term value to shareholders. So at 188x, NFLX stock strikes me as flying too close to the sun. I see the wax melting a little.

As of this writing, Luce Emerson did not hold any of the aforementioned securities.