Counterparties: Netflix’s contented quarter
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Analysts may haveÂ made a huge mistake inÂ lowballing estimates of Netflixâs subscriber growth. Thanks in part to the acclaim of House of Cards — and maybe in anticipation of new episodes of Arrested Development — Netflix was able to addÂ 2 million new streaming subscribers in the US in the first quarter. Its streaming subscriber base is now 29.2 million in the US, or 200,000 more than wasÂ expected.
Netflix now has more American subscribers than HBO (29.2 million vs. 28.7 million)
Netflix is now the most watched âcable networkâ in the US (U.S. households spend 87 minutes per day using the service, more than any other cable outlet)
Netflix is the S&Pâs best performing stock of 2013 (up 134% to date)
Netflix shares have a lofty price to book ratio of 13.1, nearly as high as Amazonâs 13.9. Analysts are scrambling to catch up with investorsâ bullishness: âAt least eight brokerages raised their price targets on the stock by as much as $75 to as much as $250,âÂ Reuters reports, in an echo of the last time Netflixâs stockÂ decoupled from its fundamentals.
Derek ThompsonÂ says that Netflixâs quarter was an âepic winâ and shows that its grand strategy — âStep 1: Buy original content; Step 2: Add subscribers; Step 3: Profitâ — is paying off.
But that last part of the strategy, the profit, has been muted. Despite the jump in subscribers, NetflixâsÂ net income was just $3 million on revenue of $1 billion. Moreover, Netflixâs cash flow isÂ deteriorating and the company has off-balance sheet liabilities equivalent to 76% of its assets, asÂ ZeroHedge points out.
Even the positive signs — like the uptick in the streaming businessâs operating margin to 20.6% from 19.2% — could end up being temporary. AsÂ Felix wrote last year, Netflixâs content costs are unpredictable: âany time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears.âÂ – Peter Rudegeair
On to todayâs links:
Actually, student loans are a major drag on the economy – Mike Konczal
Student loans aren’t destroying the economy – Derek Thompson
“The slowdown in economic activity is right on schedule – for the 4th year in a row” – Sober Look
And, of course, there are many more links at Counterparties.