This may be a little off topic, but I’m basing it on the principles we on this board use to value things, and I hope it will be at least a little interesting and maybe amusing. Apologies if anyone finds it misplaced.
This guy thinks NFLX might be a buy at a share price of $50. http://investorplace.com/2016/02/netflix-inc-nflx-stock-pric…
I think even that is a bit pricey.
Even using non-GAAP numbers, NFLX made 28 cents a share in 2015 and expects to make 27 cents a share this year. Even at a generous PE of 25 (I’ll pick 25 since they’re growing revenue at 25%), that equates that equates to a value of $7 per share. It takes the absurd 300+ PE to get NFLX to its current share price.
In 2017, NFLX is expected to somehow eke out $1.05 per share. I’m skeptical. NFLX inevitably grows revenue at a steady 25% pace, but they’ve had a lot of trouble getting that revenue to the bottom line. There’s an upcoming price hike that will help a lot. But NFLX isn’t the only one raising prices. Their COGS as a % of revenue has hovered around 70% forever. Literally, I looked back to 2006. It’s actually higher now than it was then – while revenue is now 6x what it was. Also, the R&D spend is about twice as much percentage-wise as it was in 2006. Luckily SG&A is down to balance that out. So despite all the great revenue growth, margins haven’t improved thus far.
The price increase is about 11%. Let’s go absolutely nuts and drop almost half of it to the bottom line. Let’s say NFLX goes from a Net Profit Margin of less than 2%, to 7%. Net Income would jump from 25-30M per quarter to more like 125M or 150M. Again using a PE of 25, the top end of that spectrum would make NFLX worth about $33 a share.
I know, 400% or more EPS growth in the next year or two seems a little absurd, and I certainly don’t think the impact will be that immediate. But even if it is, look what we get: $33 a share? It’s selling for over $100 right now.
That is one possible near future. Maybe the rosiest one I can imagine. There is also the risk that things don’t work out that way. So even $33 is too much to pay for the stock today. I think I’d set the price somewhere between $7 and $33…say about $20/share.
$20. One fifth of Mr Market’s price today. That’s what I’d pay for NFLX, if I were interested in being a shareholder.