Week 12: Closing Time

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Well folks, this is the end.

Yes, after twelve long weeks of covering the streaming giant Netflix, my reign as analyst will be coming to a close. The semester is wrapping up, and it’s just about time for me to throw in the towel on this escapade.

I would like to first thank all of you for coming on this journey with me. I know at times it has been a struggle, but I have learned a lot along the way, and I hope you have too.

As a way to sum up my experience, I would like to discuss some of the lessons I learned during this journey with Netflix. It has certainly been a wild one, full of surprises and unpredictable jumps and drops. Nonetheless, it has taught me more about a company that has undeniably impacted my life and will certainly be prevalent in the future.

So let’s get into it:

Lesson 1: Expansion

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Netflix’s global expansion

One of the most consistent messages from Netflix was their expansion measures. Whether this was through deals with Viacom to be apart of an exclusive production agreement or in expanding into both the African and Indian markets, Netflix has had one goal in mind: grow at any cost. And by any cost, I mean any cost. Yes, Netflix is willing to take on $8 billion annually in order to expand its production efforts.

This expansion effort has taken a few different paths. Netflix has moved to make its own original content in the future, expanding its already diverse set of programs. This has taken the form of production agreements with companies in order to produce original content. It seems as though Netflix will eventually drop its existing licencing agreements in order to support its own ventures, changing from a streaming platform to an original content streaming platform. As an Office enthusiast, this movement makes me somewhat worried I might lose my favorite show, but it is still too early to make any assumptions.

Another way this expansion has occurred is in the form of international markets. Although it is still important to add domestic subscribers, Netflix’s push has been towards the international markets, specifically untapped markets with high human populations. These include both Africa and India, in addition to other Asian markets. Netflix has agreed to create programs specifically for these areas, employing its European offices to spearhead the operation. Netflix has been adding international subscribers at an increasing rate, demonstrating their success in expanding into foreign countries.

Lesson 2: Competition

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A few of Netflix’s competitors

There are many reasons for the aforementioned expansion, but one that cannot be understated is the importance of competition. Over the past twelve weeks of covering Netflix, I have witnessed the transformative effects of competition on an individual company as well as an industry.

Competition has definitely ramped up over the past few months. Disney recently announced the creation of its streaming service, Disney+, to compete with Netflix. This seems to have a similar platform as Netflix with a focus on children’s content. While it might not be a direct reaction to Disney+, Netflix signed a deal to animate Raul Dahl’s children’s novels, which could be viewed as an attempt to compete with the children’s programs industry.

Earlier this year, 21st Century Fox acquired British streaming giant Sky. This move demonstrates 21st’s desire to compete with Netflix and other streaming companies in the Euro sphere. Netflix has been consistently adding customers in Europe, and hence, other streaming services need to compete with them. This increased competition is fun to watch as a consumer, for we get better packages and services for lower prices.

Lesson 3: Authenticity

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One of the things I’ve learned about Netflix during my time covering the stock is its commitment to authenticity. While Netflix is by no means a transparent organization, it does its best to stay true to its roots. It starts with CEO Reed Hastings, who I analyzed as a “non problematic CEO.” This man simply silently grinds away, finding new ways to innovate and expand his company.

It continues with Netflix’s somewhat ruthless style of peer evaluation. Using a 360 review, employees are held to the highest standard and are subject to harsh criticisms from those around them. This seeks to avoid sugar coating and gets at the core of what it means to be a good employee.

Another example of this authenticity is Netflix’s avoidance of ads. Earlier in the year, the streaming giant dabbled with the idea of adding ads between shows to fund its expansion. However, after a pretty significant rejection from the public, Netflix decided to keep its traditional ad-free streaming.

Given what I’ve learned, would I want to work for Netflix?

If the opportunity presented itself, I would likely take it. Netflix fosters creativity and has a desire to expand and bring joy via streaming to people all over the world. There seems to be a lot of upward mobility for Netflix, and hence I would be interested in taking a job here. I would also be curious what it would be like to be apart of a 360 review, both as the one under review as well as giving feedback to my peers. I do see something similar to this at schools, where teachers are subject to student evaluations. However, this does not compare to the 360 review, for teachers do not seem to be graded by their peers or customers. I think it would be advantageous for me, as I would be able to have receive complete, candid feedback from those around me.

Now, investment is a different story.

When I first started covering Netflix, it was trading at $348.68. It is currently trading at $265.14. That’s a loss of 23.94% in only twelve short weeks. For most, that would be reason to not invest in a stock.

Now while this certainly factors into the investment equation, it is not the primary reason I would not invest in Netflix. Rather, I feel as though Netflix is growing too big too fast. In addition to being apart of the FANG stocks, a tech giant, and having a P/E of 91.62, Netflix has too much hype and not enough production. Their cash flow is very negative, and they seem to be spending money they don’t have. In addition, they are expanding far too quick, moving into many different markets that they have not test sufficiently. There is also mounting competition in the form of both large companies and small niche organizations and will only get worse.

All in all, I would have to pass on investing in Netflix.

It has been a pleasure and an honor to lead you all on this journey. Thank you for bearing with me. Netflix, thank you for being an exciting business to cover through its ups and down.

To my readers, good luck with your future investments. I hope they all turn out well.

As of now, this will be my last blog post for a while. But who knows, maybe sometime in the future I will return to Sernas’s Sunday Secrets with some new insight.

Signing off,

Sernas

 

Sources:

https://finviz.com/quote.ashx?t=NFLX

 

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