Why Netflix Shares Cannot Be Valued Using Traditional Metrics

Netflix, Inc. NFLX is one of the few large-cap companies consistently delivering 20+ percent organic top-line growth. It is for this reason that analysts at Rosenblatt Securities feel the company cannot be valued based on traditional metrics.

Evaluating Netflix Differently

Recent international expansion has delivered losses in some markets, and a heavy push for investment in original content makes it difficult to value the company through typical means.

“Netflix is building a content moat and amortizing it over a global direct-to-consumer audience. We project NFLX will be spending $15 billion per year on content in five years and $25 billion annually in 10 years,” Rosenblatt's note read.

The firm noted that Netflix has the largest global subscriber base, making it the lowest costing provider on a per subscriber basis. Netflix’s current distribution is favorable for producing original content — as it serves as the producer, distributor and retailer — allowing the company to maximize its profit.

Analysts' Conclusions

Rosenblatt Securities initiated coverage on Netflix with a Neutral rating and a $150 price target, saying the company has greatly accelerated TV consumer behavior changes. The firm values Netflix’s domestic business at $53 per share, while pegging the international business at a $97 per share valuation.

Rosenblatt analysts stated, “By 2025, we believe NFLX will have over 240 million global subscribers generating a $15 ARPU, resulting in over $40 billion of revenue, up from $9 billion last year; and $12 of EPS still growing at almost a 20 percent CAGR.”

While there has been concern about Netflix content spend getting out of control, analysts see the company as having significant flexibility, which enables the Netflix to balance long-term subscriber growth with near-term profits. The company will report first-quarter results on April 17.

At time of publication, shares of Netflix were down 1.21 percent at $145.13.