Netflix (NASDAQ:NFLX) is one of the miracles of the cloud revolution. In just a decade it has become the 800-pound gorilla of global entertainment. Netflix has demolished the cable business, the movie business, and the TV business, replacing all their business models with a simple monthly subscription.
But does that mean I’d put new money to work in Netflix today?
Not on your life. At its May 13 opening price of $352 per share, Netflix sells for more than 9 times last year’s revenue, an eye-popping 123 times last year’s earnings, and let’s not talk about dividends because there may never be any.
The way to make money on Netflix is through capital gains. Those might still be handsome, but even bulls are forecasting they’ll slow from here.
Global Dominance for NFLX
While Walt Disney (NYSE:DIS), AT&T (NYSE:T), Comcast (NASDAQ:CMCSA) and the rest of the Hollywood pack has been gearing up to challenge it in the U.S., Netflix has already spun its Web around the world, and its data around viewers’ hearts.
Just look at its first-quarter report. At the end of March Netflix had 88.6 million paid members outside the U.S., from which it was getting an average of $9 per month. That was up 39% from a year earlier, and it could easily be 100 million by the end of 2019.
Or look at the black box which is Netflix’ viewer data. Unlike the industries it competes with, Netflix doesn’t offer ratings. What happens on Netflix stays with Netflix. It’s a private dance, between people finishing a show and thinking about what to watch next, the Netflix’ algorithm’s guesses as to what that might be, and viewers’ final decisions. The only thing Netflix has to fear is the off button.
Disney’s Hulu, Comcast, and the rest of the pack can hope stars and libraries of old shows draw subscribers in. Netflix knows what you want, and how to give it to you, whether you’re in Kansas City or Kuala Lumpur.
The Trailing Pack
That doesn’t mean Hollywood is helpless.
It can pull its content off the service. It can issue proclamations of its own U.S. growth, from a much lower base. It can bemoan the shows
Netflix is dumping. It can point to what are now regular rate hikes. It can tut-tut about Netflix’ debt, which now represents 40% of physical assets but a miniscule portion of its net worth. Hollywood executives also talk confidently about how Netflix will have to ruin itself with commercials, as though that will be a silver bullet against its growth and not an added revenue stream.
What the smart people in Hollywood are doing is poaching Netflix’ executive talent, looking to feed the new global beast. What the smart people in Hollywood are doing is adapting themselves to Netflix’ global dominance.
The Bottom Line on Netflix Stock
Netflix was once considered a cable channel like HBO, then a cable network like AT&T’s Time Warner, and is now as big as cable itself, with a market cap approaching that of Comcast.
Netflix is a product of the cloud revolution, which continues to consolidate whole industries into global entities. What it has most to fear are its cloud hosts, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and its YouTube service, Amazon.com (NASDAQ:AMZN) and its Amazon Prime service, Apple (NASDAQ:AAPL) its Apple TV.
Netflix and the cloud czars represent the new entertainment universe. Wall Street knows this. It’s why Netflix is now so fully valued. The best way for you to get in is to wait for Wall Street itself to stumble, then grab some Netflix and chill.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and AAPL.
