Netflix (NFLX) Growth Expectations Might be Outpacing Capability
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Netflix (Nasdaq: NFLX) shares are seeing a little bit of early pressure Thursday amid some skeptical comments hitting the market.
According to Barron's, Netflix might be getting a little ahead of itself. The magazine reports that Netflix has quintupled in stock price over the last five years, a move that might give investors some worry.
Netflix is expected to report earnings of $1.36 per share in FY13, while profit is expected to grow to about $11.43 per share by 2017. That estimate is a four-times multiple of operating margins, Barron's noted. Revenue over the same period is expected to rise with CAGR of 13 percent.
Barron's notes that Internet companies with low fixed costs would be able to produce that sort of margin growth, but Netflix is a different story. One Morningstar analyst recently estimated that Netflix overpaid for its Disney (NYSE: DIS) content deal, which is estimated to cost $400 million per year.
Say investors who buy the stock today want return of about 12 percent per year and that Netflix is able to achieve margins comparable enough to hit the analyst EPS target for 2017. That would put Netflix at 27 times earnings in 2017, which hints at the company still being growth oriented. Barron's notes that a lot of things have to happen right for that scenario to play out, which includes keeping competitors like HBO and Amazon.com (Nasdaq: AMZN) from gaining too much market share.
Netflix is down 1.8 percent Thursday.
According to Barron's, Netflix might be getting a little ahead of itself. The magazine reports that Netflix has quintupled in stock price over the last five years, a move that might give investors some worry.
Netflix is expected to report earnings of $1.36 per share in FY13, while profit is expected to grow to about $11.43 per share by 2017. That estimate is a four-times multiple of operating margins, Barron's noted. Revenue over the same period is expected to rise with CAGR of 13 percent.
Barron's notes that Internet companies with low fixed costs would be able to produce that sort of margin growth, but Netflix is a different story. One Morningstar analyst recently estimated that Netflix overpaid for its Disney (NYSE: DIS) content deal, which is estimated to cost $400 million per year.
Say investors who buy the stock today want return of about 12 percent per year and that Netflix is able to achieve margins comparable enough to hit the analyst EPS target for 2017. That would put Netflix at 27 times earnings in 2017, which hints at the company still being growth oriented. Barron's notes that a lot of things have to happen right for that scenario to play out, which includes keeping competitors like HBO and Amazon.com (Nasdaq: AMZN) from gaining too much market share.
Netflix is down 1.8 percent Thursday.
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