Netflix Inc. (NASDAQ:NFLX) has become the best performing U.S. stock in the Standard & Poor’s 500 Index in 2013 and the second most expensive, and therein lies a tale of disagreement.
Investors who dig into company filings can find negative free cash flow, a surge in liabilities for new movie and TV-show content and a long-term increase in unpaid subscribers. Moreover, perceived limits on customer numbers and the high price of shares have led 26 of the 37 Bloomberg-listed analysts covering the stock to advise investors to sell or hold stakes.
Most shareholders aren’t listening to talk about a bubble or other bad news. They love Netflix.
Michael Pachter, a managing director at Wedbush Securities Inc. in Los Angeles, says a lot of investors are dazzled by the growth potential of online businesses, such as Amazon.com Inc., a startup-turned-industry-giant that sold $16 billion of merchandise in the first quarter. As long as there is growth, these investors, “in a weird bubble of Internet stocks,” show little concern about the finances of online companies, he said.
“Netflix looks like Amazon to most investors,” said Pachter, who rates the No. 1 Internet video subscription service “underperform.”
Chief Executive Officer Reed Hastings may get questions about the Los Gatos-California-based company’s performance when he hosts a videoconference today to discuss second-quarter earnings. Hastings, 52, who owns about $690 million in Netflix stock, will also be in position to trumpet the success of the drama series, “House of Cards,” which received nine Emmy Award nominations last week, including best drama. It’s the first time an Internet streaming service has vied for these top entertainment honors. Netflix got 14 Emmy nominations in all.
Fielding questions from fellow analysts on the call will be Richard Greenfield of BTIG LLC, which specializes in trading and services for hedge funds. He saw Netflix stock shoot past his April target of $250 and plans to reassess his projection after he hears the results today. One probable positive that’s already clear, he said: The Emmy nominations may encourage talented people to participate in Netflix’s “next big show.”
Investors who want to check if the naysayers have a point can start with a review of cautionary disclosures Netflix has made in regulatory filings and in correspondence with the U.S. Securities and Exchange Commission. As with most CEOs, such items aren’t the principal focus of Hastings’s popular accentuate-the-positive message in telling his company’s story.