Agree totally with you, Anirban, about NFLX being an exception to the generally accepted P/E rule.
As a long term shareholder, it will be satisfying to see the 12% pop tomorrow morning from the surprise growth of international subscribers.
Great summary in this link:
Netflix surprises on international growth
6:37 PM ET 4/15/15 | MarketWatch
By Therese Poletti, MarketWatch
Opinion: International growth spurt has pluses and minuses
SAN FRANCISCO (MarketWatch) – Netflix Inc. saw bigger growth in its international subscribers at a pace that outstripped Wall Street’s expectations, but euphoric investors need to remember that with that extra growth comes the potential negative impact of foreign currency fluctuations.
Netflix (http://www.marketwatch.com/story/netflix-adds-more-users-tha…(NFLX)) shares soared 12% (http://www.marketwatch.com/story/netflix-adds-more-users-tha…) in after-hours trading, after the company’s results showed that it reached 20 million international subscribers, and surpassed 40 million in the U.S. Some analysts had recently been expecting a bit of an upside surprise from international growth, however the subscriber number was better than most had projected. SunTrust Robinson Humphrey analyst Robert Peck recently upgraded his international estimate to 19.6 million subscribers.
Still, as Netflix Chief Executive Reed Hastings noted in his letter to shareholders (http://files.shareholder.com/downloads/NFLX/47625901x0x82140…), the stronger dollar hurt its financial results, with international revenue lower by $48 million, which resulted in a $15 million negative foreign exchange impact. The company reported first quarter net earnings of 38 cents a share, which would have been 77 cents a share if not for the foreign currency loss.
“We’ll have a full quarter of content expenses in ANZ [Australia and New Zealand] in Q2 and expect the international segment loss to grow to $101 million, increasing throughout the back half of 2105 as we expand to additional markets,” Hastings wrote.
Netflix does not have a currency hedging program, as other big tech giants do, such as Apple Inc.(AAPL) and IBM Corp. (IBM) and says in an investor FAQ on its website (http://ir.netflix.com/faq.cfm#Question31058) that it engages in “natural hedging” in which its content licenses in international markets are paid in local currency to match local revenue collected by members.
Most investors don’t appear to mind, at least for now, with the goal of seeing bigger profits eventually. Pacific Crest Securities analyst Andy Hargreaves wrote in a note last week that the company’s “ongoing global expansion should increase the size of this competitive advantage as Netflix’s scale should allow it to target content even more efficiently and amortize that content over a broader sub base than any of its linear or on-demand competitors.” He gave the stock an “outperform” rating.
In addition, with new competition in the U.S., such as Time Warner (TWX) HBO’s new streaming service HBO Now, the company is likely to up its marketing spending as well.
“Profitability appears to be an afterthought,” said Wedbush Securities analyst Michael Pachter, in a note. “Netflix will be forced to increase marketing spending in future periods to maintain subscriber net adds, the most important metric for many investors.”
So as Netflix continues to grow, it’s going to see some pains along the way. But as its shares soar to new highs in after hours, it would appear that investors are willing to live with the pain, for now.
-Therese Poletti
Dow Jones Newswires
