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We’ve been bearish on Netflix (NFLX: $310/share) for many years, and it seems as if the market is finally catching on to the issues with the business model that we’ve seen all along. The stock is down 15% after the company missed subscriber expectations for Q2, and short interest is up 20% over the past month.

At this point, we think it’s hard to ignore all the red flags in Netflix’s fundamentals and valuation. Here’s a list of all the reasons why Netflix will struggle to justify its valuation. Netflix is in the Danger Zone.

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    2 replies to "All The Reasons Why Netflix Is Doomed"

    • Russell

      That may be what the traditional valuations metrics say but if you look at previous market transactions, like HBO, each subscriber was bought for around $1000. Their subscribers have higher fees but for the sake of simplicity, let us assume they cost $1000 each. Since NFLX expects to have 168M subscribers by 2019 Q4, it would be worth $168 billion, which is less than the current market capitalization of $136 billion.

    • Sam McBride

      I’m not sure how you’re valuing HBO since it was part of Time Warner, so we can’t be sure how much of the acquisition price AT&T paid was for HBO in particular. However, a key difference between HBO and Netflix is that HBO actually generates positive cash flow from its subscribers. HBO’s annual content budget is ~$1.5 billion, or roughly 1/10th of Netflix’s projected content spending this year. Anyone who acquires Netflix is not just paying the acquisition price, they’re also committing to sinking huge amounts of money into content spending every year if they want to keep those subscribers.

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