Strong Start for Netflix, but Shares Pricey

Neil Macker: Netflix started off 2018 on a strong note, as it beat its own subscriber guidance once again. The firm continues to expand and now has over 56 million subscribers to the United States, with over 125 million globally. Management continues to attribute its out performance on subscriber growth to the continued adoption of streaming video worldwide and its expanding content library.

The firm projects to spend $7.5 billion to $8 billion on content in 2018, up sharply from $6 billion in 2017. The firm has expanded its content focus, moving away from the original scripted shows that have been previously focused on into unscripted shows such as the "Queer Eye" reboot and "Nailed It." We expect the firm to continue to expand its content focus as it ramps up its content library in anticipation of Disney's entrance into the market in 2019.

As the result of the increased content spend, Netflix now projects to have a cash flow burn of $3 billion to $4 billion in 2018, up sharply from $2 billion in 2017. Most of the cash flow burn will happen in the second half of the year, as the firm has pushed out both its content and marketing spent. We are maintaining our narrow moat rating for Netflix and our $90 fair value estimate.