Last week, Netflix, Inc. (NASDAQ:NFLX) stock was upgraded by two well-known investment firms, but the shares failed to gain value on the back of these ratings. MKM Partners analyst Rob Sanderson upped his price target for Netflix stock to $230 from $195, while BTIG analyst Richard Greenfield increased his price target to $225 from $170. Netflix, Inc. (NASDAQ:NFLX) is up over 45% since the start of this year.
Netflix, Inc. (NASDAQ:NFLX) recently surprised investors by posting a subscriber growth of 5.2 million, significantly higher than the excepted growth of 3.23 million subscribers. The company added 4.14 million international subscribers, compared with the estimated 2.59 million subscriber growth.
Netflix second quarter revenue grew by a whopping 33% year over year to $2.78 billion, while the Street was expecting the revenue to come in at $2.76 billion. For the third quarter, Netflix expects EPS of $0.32, versus the consensus estimate of $0.23. Revenue in the quarter is expected by the company to come in at $2.97 billion, while analyst are eyeing for $2.87 billion.
Under Threat from Industry Giants
Netflix, Inc. (NASDAQ:NFLX) is under threat from major tech companies like Apple and Facebook. Apple is all set to enter the content industry. The company recently hired famous TV executives Zack Van Amburg and Jamie Erlicht from Sony. The two execs were behind the blockbusters like Breaking Bad and Better Call Saul. Facebook is also ready to start producing original videos in collaboration with media partners like Buzzfeed, Vox Media and other media platforms.
A Cash Burning Machine
Analysts who are bearish on Netflix, Inc. (NASDAQ:NFLX) believe that the company is spending too much on content costs and production. Netflix is expected to spend $2.5 billion in cash for the production of new shows and marketing in the coming quarters. Netflix’s domestic customer acquisition has more than doubled. But the bulls believe that the spending is paying off. Netflix, Inc. (NASDAQ:NFLX) originals like Stranger Things, Master of None, Unbreakable Kimmy Schmidt have received no less than 91 Emmy nominations this year.
Negative Cash Flows
Netflix free cash flow is expected to remain in the negative territory for the foreseeable future. For full fiscal 2017, Netflix cash flow is expected to be between -$2 billion and -$2.5 billion.
There are some genuine concerns regarding Netflix valuation. The company has one of the highest PE rations among the FANG and tech stocks in general. Netflix, Inc. (NASDAQ:NFLX)’s market cap is over $78 billion, and the company generated just $66 million in net income last quarter.
Netflix needs a lot of money to keep producing original content to sustain the subscriber growth. In April, the company raised $1 billion through foreign debt financing. It has a long term debt of $4.84 billion, which is huge. These factors will eventually weigh in and affect Netflix stock negatively.