Skip to Content
Stock Strategist Industry Reports

Netflix Still Not Getting It Right

Not only does the firm face headwinds in the United States, but we view its push for international expansion as a long-term money loser.

Mentioned: , , , , ,

 Netflix's (NFLX) wild ride continues. During the last 18 months, we have made two successful 1-star calls on its stock. The first as it ran from $150 to $300, then again after the "great fall" of 2011, when the shares hit our 4-star rating at $62 in November 2011 and triggered our 1-star rating at $125 two months later. We recently lowered our fair value estimate to $55 per share from $80, which would make Netflix a 1-star call if the stock price increased to around $85.

We arrived at our new fair value estimate after lowering our long-term assumptions for subscribers and profitability. Our $55 fair value estimate implies forward 2013 price/earnings of about 50 times. Admittedly, short-term earnings per share estimates are difficult to predict given Netflix's new business model and various moving parts in the cost structure. But we believe Netflix's business model is flawed as most of the economic rents flow through to the content owners, and we see the international business acting as a drag on earnings and cash flow.

Michael Corty does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.