Netflix has released a number of great shows, including American Factory, Inside Bill’s Brain: Decoding Bill Gates and The Naked Director.
All these have become big hits and lured many new subscribers.
For the third quarter, Netflix posted a net profit of US$665 million and added 6.8 million new customers, bringing the total to 186 million worldwide.
However, after a brief rally last Thursday, Netflix resumed its declining trend which has lasted for three months already, closing last week at a level below where it was before the latest results were released.
It poor stock performance recently can be partly explained by the crazy valuation the company had been enjoying previously.
Despite the 30 percent pullback over the past three months, Netflix is still worth about US$120 billion, implying a price-earnings ratio of nearly 100 times, much higher than most other US tech plays.
Adding to the pressure is the entry of several deep-pocketed rivals such as Apple, Amazon and Disney into the online streaming business.
Content quality is a major selling point for Netflix, but when these new formidable rivals are all burning cash to boost their offerings, Netflix’s edge will be eroded.
The competition for production talent also means Netflix could be looking at higher costs going forward and keener competition for audiences at the same time.
Bearing in mind that it’s very easy for consumers to switch to its competitors, Netflix does not have much of a moat.
The company estimates 7.6 million new subscribers for the fourth quarter, much lower than Wall Street estimates of 9.6 million.
All this is bad news for Netflix shareholders.
This article appeared in the Hong Kong Economic Journal on Oct 18
Translation by Julie Zhu with additional reporting
[Chinese version 中文版]
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