- Netflix streaming revenue surpassed HBO's in Q2 2014.
- With growing subscriber base and focus on own content, it could be the HBO of online streaming.
- Soaring growth rates may lead to higher expectations and premium valuations.
- Netflix is a Hold Call according to current Netflix stock analysis.
Netflix (NASDAQ:NFLX) seems to have added a new star to its uniform. Reed Hastings CEO, Netflix took to Facebook to announce that the video streaming service is now pulling in more subscriber revenue than HBO. “Minor milestone: last quarter we passed HBO in subscriber revenue ($1.146B vs $1.141B),” Hastings stated in his post. The market likes what it sees in Netflix. Though the shares tend to be volatile, Netflix stock price is near an all-time high on an increase of more than 4 percent following Hastings’ post.
It is pertinent to note that in terms of profits HBO is way up in comparison. In quarterly numbers released this week, HBO’s profits hit $548 million. Netflix, by comparison, reported second-quarter profits of $71 million. Having said that, it is a milestone nevertheless. Netflix is hardly a decade old in video streaming whereas HBO has been in business for over 4 decades and has the backing of a giant (Time Warner). On a content wise comparison, for every House of Cards from Netflix, HBO has its own Game of Thrones, True Blood, True Detective etc.,.
The advantage for Netflix is it is not purely viewed by investors as a Cable/Media company but is also viewed as a tech company. When it comes down to Wall Street Analysts, it is seen more as a tech company with a lot of growth and free cash flow in the future rather than as a cable/media company which is viewed purely on its subscriptions and profits. The comparison between Netflix and HBO is not exactly apples to apples as HBO is primarily a TV channel with streaming and on demand shows while Netflix is an online content streaming company which has started producing its own shows.
On the market front, Netflix closed the last trading session at $445.85, down 0.85%. This is a temporary fall as the consensus on the stock is that it is tipped to trade close to $500, though the current momentum for the stock is down. The PEG ratio is at 4.78 which may indicate that consensus estimate of growth is higher than current market estimate and that the stock could be over valued in the short term. The general call is to HOLD the stock medium to long term, even though the short term momentum is down for the stock. Netflix stock is however much above the industry growth rate (-13.10%), which is one of the value adds of being viewed as a tech company in media streaming as stated earlier. Netflix has been a great buy for investors who spotted it earlier. Revenue soared more than 21% in 2013. The stock is trading for an astounding PE ratio of 131 times its adjusted earnings over the past 12 month. Even if the company achieves target growth rates, it’s hard to see upside, according to the Wall Street analysts. The stock is rated a “hold” on average by analysts, according to current Netflix stock analysis.
Nevertheless on comparing parameters such as domestic subscriptions (Netflix - 36 million , HBO - 28 million) & YoY growth (Netflix - 21%, HBO - 4%), Netflix subscriptions have surged as the company gains a name for itself as a producer of its own shows, and it plans to start new ones. To make HBO like profits, it seems, Netflix will keep trying to become more like HBO. It is clear that Netflix, the David of yesteryear, is now big enough to take on HBO.