Difficult to Value Netflix, Inc. (NFLX): Anthony Diclemente


Netflix, Inc. (NASDAQ:NFLX) has reported their second quarter earnings, which were pretty much in line with the expectations. They met the expected revenue and EPS for the quarter at $1.34 billion and $1.15 respectively. They reported 50 million subscribers (domestic + international), which was higher than the forecasts. Anthony Diclemente, Senior Analyst at Nomura Securities, talked on CNBC about Netflix’s performance, method to value their stock and their stand on Comcast Corporation (NASDAQ:CMCSA) and Time Warner Inc (NYSE:TWX) cable merger.

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Diclemente thinks that Netflix, Inc. (NASDAQ:NFLX)’s business model is similar to Amazon.com, Inc. (NASDAQ:AMSN) with a matured domestic presence with higher profits and contribution margin around 30%. Like Amazon, Netflix is investing internationally to strengthen their global presence. Netflix started with initial losses; now planning to launch their business in France and Germany.

“I think what I am trying to do is find a way to value the domestic business and then value the international business, kind of on a sum of the parts basis, the way some analysts look at Amazon. But it is true that at these price levels, it becomes a little bit more difficult to value Netflix,” he said.

The discussion went on to the Comcast Corporation (NASDAQ:CMCSA) bid for Time Warner Cable Inc (NYSE:TWC). This would let Comcast control 60% of the US broadband households, which might not turn out to be good news for Netflix, Inc. (NASDAQ:NFLX). This would mean that they might have to pay larger net neutrality fee to Comcast and if Comcast comes up with their own streaming business, they might turn into a serious competitor for Netflix.

Netflix, Inc. (NASDAQ:NFLX)  opposed this merger right from the beginning, stating multiple reasons. However, when the news was in the air about Twenty-First Century Fox Inc. (NASDAQ:FOXA) trying to acquire Time Warner Inc (NYSE:TWX), Netflix did not oppose that.

Diclemente feels that Netflix has a very strong net neutrality policy and would definitely like to see the merger between Comcast and Time Warner Cable Inc (NYSE:TWC) blocked for their benefit. He thinks that since Fox and Time Warner are both big media giants, Netflix would not have had any leverage to negotiating power with that merger and hence did not oppose that.

Disclosure: None

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