As Netflix Value Rises Toward $200 Billion, Program Costs Loom

By Douglas A. McIntyre Updated Jan 11, 10:08PM EST · Published Jun 20, 6:45AM EDT

As Netflix Value Rises Toward $200 Billion, Program Costs Loom — © courtesy of Netflix Inc.

Netflix Inc.’s (NASDAQ: NFLX) market cap is $176 billion at $410 a share. Several analysts believe it will go much higher. The regular knock on the stock’s value is not the rise in Netflix subscriber count. The criticism is that it is in a war with studios and other tech companies for a lead in original programming.

Along with new producers of TV shows and movies, Netflix has competition from Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NYSE: AMZN) and Hulu. The arms race is not new. It has gone on for several years, with Netflix the likely leader in dollars invested. A prime example of what these companies pay for talent is the recent Apple deal with Oprah. She must have been offered tens of millions of dollars, or more, based on industry partnerships to get top talent.

Netflix says its commitment to programming is above $10 billion for the next three years. Its revenue in its most recently reported quarter was $3.7 billion, up from $2.6 billion in the year before. Its forecast for revenue in the current quarter was $3.9 billion. Despite the rise in revenue, Netflix margins are tiny. It had net income of $290 million in its latest quarter, compared to $178 million in the year-ago period. The idea that a company that may make as little as $1 billion this year is worth $200 billion is considered absurd in many circles.

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The presumption is that Netflix original programs increase its subscriber base and help retain current subscribers. Churn in subscribers is among the largest enemies streaming services have. However, Netflix has never drawn a credible line between its own programs and subscriber count or churn. How many of its 119 million subscribers have started the service, or kept it, because Netflix has dozens of its own shows, some of which have won major awards? How many subscribe or stay because of movies and TV shows Netflix offers from traditional TV and movie producers?

Netflix’s market value may reach $200 billion, but even a small misstep in its strategy to produce its own programs could quickly hamper that.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.