
Netflix is now worth more than $100B - LearnerHerzog
https://techcrunch.com/2018/01/22/netflix-is-now-worth-more-than-100b/
======
anilshanbhag
The entire stock market feels like its in a bubble. Netflix stock gained more
than 25% in the past one month. Their free cash flow (FCF) has been negative
every single quarter and will be for many quarters to come. Stocks trade based
on discounted cash flow(DCF). Netflix however produces no material return for
investors and still majority of the analysts keep putting higher and higher
price targets, its like they are collectively pushing a hidden agenda. It's as
if there is this new way of valuing companies that is not based on DCF.

~~~
eldavido
A lot of sophisticated financial people share your thinking.

The problem is there's no growth to be found anywhere. People are cheering for
3% GDP growth in the US. Interest rates are at all-time historical lows,
meaning discount rates are lower than they've ever been.

These macro trends have added up to an environment where people are willing to
pay staggering premiums for even a remote shot at growth. It's affecting every
asset class from real estate to public market equity to early-stage startups
to commodities, and you aren't the only one who's worried about it (I am).

~~~
losteric
To what degree does income inequality, consumer debt, and rapidly rising
barriers of entry to high-income fields contribute slowing GDP growth? Is
there research and evidence on the subject?

I'm just an engineer with basic financial survival skills... but blind
intuition suggests fixing those problems is necessary for a sustainable
growing economy.

"Trickle-down" theory and growing inequality drains economic activity since
the "1%" invest their money instead of spending it. They profit when the
public consumes, unless short-sighted over-exploitation by some industries
strangle general consumer activity...

It sure looks like we're being strangled. Off the top of my head: urban rent,
health care, high consumer debt and student debt reduce disposable income
while automation, exporting jobs, poor retraining for adult laborers, and
lower small-business access to capital due to banking mergers lower actual
income. When businesses close, some of their ex-employees will switch to high-
skill high-demand jobs... but most will increase the labor supply in less
skilled industries because they urgently need money - putting downward
pressure on wages and working conditions.

If I'm wrong, I'd love to learn why, and what other systemic conditions
explain our economic stagnation.

~~~
virmundi
I'm not saying you're wrong. I understand where you're coming from. You raise
good points. I think we need to add to this list one simple idea: regulation.

Housing costs are terrible. They're getting bad even in small towns like mine.
There is no way that my house is worth 172k. For many, especially in
California and states that followed their lead, housing cost are largely, not
solely, due to regulation on new house starts. Environmental impact and
associated costs make a new housing community in California on average 1
million dollars more expensive. For many, they don't even put shovel to sod.

Health in the US has a lot of this too. Governmental regulations and the AMA
drive up the cost of doctors. All of this is well documented. Interestingly,
the free market is coming to a possible rescue on the price of generics:
[https://www.nytimes.com/2018/01/18/health/drug-prices-
hospit...](https://www.nytimes.com/2018/01/18/health/drug-prices-
hospitals.html)

A good chunk of student debt is due to the government printing money for loans
that students can't escape. School saw this bottomless supply and acted
accordingly.

Job exporting has some factors due to regulation too. As do the others in your
list.

I'm not saying that regulation is bad. I believe in free markets, not
unfettered markets. However, a lot of the regulation is old, duplicative, and
contradictory. It makes being a business far more complex than it should be.
Regulation hampers innovation. We need to remove regulatory cruft at all
levels. We need to adopt evidence based regulations.

~~~
losteric
I'm a strong believer in using minimal but _sufficient_ regulations and taxes
to shape market growth.

There are some absolutely unnecessary regulations, like the loopholes Tesla
has to go through to sell cars because traditional dealerships don't want to
lose money, or unfair taxes against green energy - protectionism must die.

There are also outdated but reasonable regulations, like Seattle's density
regulations. Our housing crisis is caused by the market lagging far behind
economic growth because it took years for the public to recognize the city was
growing, years to change the laws, and then more years for the normal
construction timeline. Density regulations as a _concept_ make sense, but we
haven't figured out how to auto-scale limits to avoid falling behind.

And then there are areas where we do need more regulations. For example, we
absolutely need more regulations on credit cards and loans in addition to
better finance education in highschool. Consumers are responsible for being
informed, but there's still no excuse for even _offering_ to saddle someone
with a high-interest loan that they can never hope to pay off... some people
are simply too dumb to understand the math.

I like the phrase "evidence-based regulations", but sometimes the evidence is
stale or measuring the wrong thing, and the data doesn't guarantee we
implement the right system of incentives.

~~~
philipov
The main problem with regulation is that it's too easy to capture by various
corporate lobbies. Propose a good plan, and see it get shredded and repurposed
to serve those it's supposed to regulate. Congress is cheep, and campaign
committees wield the purse strings to keep their members in check on policy
issues, so the election system doesn't respond efficiently to abuses. We won't
be able to get good regulation until we can get the lobbyists and campaign
financiers out of there.

~~~
crdoconnor
>The main problem with regulation is that it's too easy to capture by various
corporate lobbies.

This is like saying "the main problem with laws is..."

In fact, this false dichotomy between "more regulation" and "less regulation"
is mainly an artefact of corporate lobby groups (plenty of examples in their
propaganda of this).

It dumbs down the issue to a childlike level and lets them play two political
blocs who might have fundamentally similar interests off against one another
depending upon what particular legislation they want introduced or repealed.

~~~
simula67
>>The main problem with regulation is that it's too easy to capture by various
corporate lobbies.

> This is like saying "the main problem with laws is..."

Is it ? A corporation that already pays employees higher than minimum wage can
drive out smaller shops that do not pay much more than minimum wage by working
to raise the minimum wage. This enables them to raise prices and screw
customers over if the smaller shops go out of business.

'Murder laws help murders by allowing them to capture murder laws'

Does not quite seem to work

~~~
crdoconnor
>Is it ? A corporation that already pays employees higher than minimum wage
can drive out smaller shops that do not pay much more than minimum wage by
working to raise the minimum wage.

If you're talking about, say, Walmart, they lobby _very hard_ against minimum
wage raises and even go as far as to threaten what appears to be self
destructive behavior to prevent it from occurring (e.g. threats to close
profitable stores).

Minimum wage goes up -> Walmart profits go down. It's that simple. (see
minimum wage across state borders by Dube, Lester & Reich).

They drive out smaller shops by using their buying power to beat suppliers
down on price, using their size to get sweetheart land deals and sweetheart
tax deals with local officials desperate to bring jobs to the area.

------
amelius
My only fear: soon there will be no BitTorrent seeders left.

~~~
21
I feel ya.

I'm watching a 2013 TV Series, it's not on Netflix, and I can't find any seeds
for it.

~~~
toomuchtodo
Your local library may carry DVDs of it, for free to checkout.

Not saying you should rip them. Or seed those rips.

~~~
CobrastanJorji
Alternately, Netflix's DVD service is still around and still has a much better
selection than Netflix.

~~~
ghaff
Unfortunately they've been letting their back catalog rot away but I still
find a minimal DVD subscription to be a good way to watch both brand new and
older films.

~~~
stevenwoo
I'm not sure if it's just me or have there been zero new releases in the DVD
section in 2018? Also sometimes I found DVD's on their top 100 list before
they show up in the new releases section - like they don't want to have a
bunch of people ask to rent a disc if they think it's going to be popular.

~~~
ghaff
Funnily enough I was just looking at that. Admittedly I've seen a number of
the releases coming out about now on planes and the like but there was
essentially nothing in the New Releases that I was interested in.

------
edpichler
I study stock market for more than a decade, for long term, and I perfectly
now that company data should not be analysed in a isolatedly, but, any stock
with P/E ratio 230.24 you need to be very careful, and put just the money you
can afford to lose without disturb your sleep.

For whom that does not understand company ratios, a P/E ratio 230.24 is
meaning that you need 230 years of profits to return to you the price you are
paying today, of course, this does not consider that the company and profits
will grow. But to have a parallel, at least in my country, really good
companies have a P/E between 20 and 30, on average, and 30 is considered very
high.

~~~
mobilefriendly
This is nonsense. P/E is a measure of earnings against the price of one share.
A high P/E does show that current earnings are small (or negative) in relation
to share price, but there's no time component inherent in P/E.

~~~
brucephillips
There absolutely is. For a company to be valuable, it must return more profit
to shareholders than they put in. The P/E ratio indicates how long it will
take for this to happen.

~~~
jonknee
Not really, it indicates how long if nothing changes over the long term. Which
never happens. Netflix is growing very rapidly which makes P/E all but
meaningless for "how long" questions.

~~~
edpichler
You are right. Today it represents just an expectation. On future, the P/E
will decrease and stabilize after the company make profit and consolidate.

~~~
jonknee
It doesn't really even represent an expectation because nobody expects their
financials to stay the same. Forward P/E fits that bill a little better.

------
rajacombinator
Finding Netflix fairly frustrating these days. Despite their runaway success
they haven’t really done anything to change the Hollywood model. 99.9% crap
with a sprinkle of watchable content. And despite the hoards of engineers and
machine learning wizards they employ, discovery and interface has regressed in
their product. Only reason I haven’t canceled yet is avoiding the hassle of
going full torrent/YouTube.

~~~
Spooky23
It is amazing to me that they offered a superior interface by any measure back
in the DVD days. The AppleTV interface for Netflix is a disgrace. I don’t
understand how they have all of these brilliant engineers, yet make an
interface worse than what Spectrum provides.

~~~
jusonchan
What exactly are you looking for?

~~~
Spooky23
A better layout. Those ribbons are difficult to use, and the app uses a
different design language than most.

I also find the discovery experience to be lousy... I often don’t hear about
new shows for months, although I use the app every day.

------
nkrode
Wanna see what a full blown network effect looks like, kidos — check out
Netflix earnings.

More Subscribers ⤵️ More Revenue ⤵️ More $$ for Original Content and Licensing
⤵️ More bids won against networks ⤵️ More content on Netflix ⤵️ More
Subscribers

~~~
brucephillips
Strictly speaking, these are scale economies, not network effects.

~~~
nkrode
That is orthogonal to the network effect you see at play here, not
contradictory

~~~
brucephillips
Network effects occur when usage increases the value of the product, as with
Google or Facebook. With Netflix, usage does not increase value. It instead
creates more revenue, enabling Netflix to invest in fixed costs, creating
scale economies.

To illustrate, if Netflix were boundlessly funded in their early days, they
could create a product that's just as valuable as it is today, even though
they had no customers, and therefore no network effects.

The one caveat is that friends talking about shows with each other does create
real network effects, but not what you're describing here.

Cheers

~~~
mrexroad
Could also view it as... more usage == more data == more value

------
nimos
Surprised Netflix hasn't branched out into more content types or more dynamic
content. You now have this two way communication channel seems kind of boring
to not try and use it even just for mostly video content.

Some of their shows run 7+ million an episode. If you look at the development
costs of simple mobile games and cut out all the stuff related to IAP it seems
like they could create a lot of value for customers for pretty cheap by making
some simple popular games without the IAP BS.

~~~
skinnymuch
Are you talking about their shows sometimes costing $7M an episode? Do you
know which ones besides House of Cards and The Crown?

~~~
nimos
Sense8, The Get Down, Marco Polo. They are planning on spending 8 billion on
content this year. Lets say they spend 10 million on a couple
puzzle/king/angry bird style games. That's .125% of their content creation
budget.

~~~
whatok
All three of those examples have been canceled.

------
niwde
There's a bubble. A bubble of desperation. You can't put your money in the
bank due to the low interest rates. Traditional businesses are not doing well.
Investors are desperate to put their money to work. So we see bubbles in tech,
bubbles in cryptocurrencies, bubbles in startups.

Best to watch what the legendary investors are doing. People like Warren
Buffett, Prem Watsa, and the likes.

~~~
batmansmk
Netflix generates $8B revenue with 3k staff, when Time Warner generates $28B
with 25k staff. Both net income are equivalent ($3B). Both valuations are
equivalent (100B). Dividends are equivalent. I don't see any bubble.

Given the right amount of capital and assets, Netflix sounds like way more
capable of growing than Time Warner in the next 5 years. Time will tell.

------
cs702
The price-to-earnings ratio is now 230, meaning that if an acquirer were to
buy the company for cash at its current market capitalization, absent any
growth in earnings, it would take the acquirer 230 years to earn the money
back, all else remaining the same.

However, the 230-year figure might be optimistic, because Netflix's cash flow
from operations, before capital expenditures, has been negative for the past
three years, largely due to fast-growing spending on content. Operations
burned almost $1.8 billion last year. It could take longer than 230 years.

In theory, Netflix could stop aggressively investing in content _any time now_
, and it would become more profitable. In theory, they could find other ways
to monetize the content at some unspecified time in the future, to generate
additional profits. _In theory_. In reality, it remains to be seen if they can
and will do those things at some point in the future, and whether doing them
will justify today's market capitalization.

It is, how shall I say this, _questionable_ whether Netflix will be able to
generate sufficient cash flow in the future to justify today's market
capitalization. That said, I _love_ the service and think the management team
has done an _amazing_ job building it, so I hope and wish they can pull it
off, for the sake of their current investors, who must be relying on similar
hopes and wishes.

BTW, Netflix is far from the most optimistically valued company today in terms
of current earnings. Amazon's price-to-earnings multiple is currently 335, and
Salesforce's is 14,796. These are not particularly unusual examples in today's
stock market. There quite a few companies trading at high-double, triple,
quadruple, and quintuple multiples of earnings.

In other words, there are currently many companies whose earnings-payback
period, for a would-be cash acquirer, all else remaining the same, is in the
many decades, centuries, millennia, or even greater. It makes no sense to me.

Source for all figures:
[https://finance.google.com](https://finance.google.com)

------
kosei
Wonder why Q4 had such a big bump but Q1 2018 seems to be dropping back down
to prior levels. Is this just people purchasing subscriptions at the holiday?
Discounts? Special content?

~~~
yeukhon
Netflix doesn’t have discount for holidays. They recently up the subscription
price. My bet is the increase has to do with the holiday effect (more time at
home), and the fact more collections are added. A good number of recent movies
are available online (Amazon, YouTube, Netflix) as soon as they leave the box.
Though the mote interesting graph would be views. During major sport events I
can bet there is a big dip.

The family subscription is a bargain though.

~~~
jedberg
> Though the mote interesting graph would be views. During major sport events
> I can bet there is a big dip.

I was looking in my archive but I can't find the graphs right now.

Yeah, during big sporting events, there is a flattening of viewing. But what
is really fascinating is that if you dig in, you find that it only affected
devices that were typically connected to TVs. So streaming was normal on
portable devices like iPads and Phones and the 3DS, but down on the big TVs.

However, the biggest dip of all happens during the Oscar telecast, second only
to the Golden Globes. :)

New Year's eve was pretty flat too, but again only on the big TV devices
(kid's devices were unaffected).

~~~
yeukhon
Wow! Really really interesting indeed. Love to hear this from someone who ran
SRE there. Thank you for sharing!!!

------
ebbv
Can we infer from this that at the end of Q3 they had ~25 million subscribers?

I am not planning to cancel Netflix but I am frustrated at how terrible most
of the content is, and how hard it is to find anything with the current
interface. I hope they're rethinking their UX and reconsidering their current
approach of "License a bunch of really cheap awful content to make it seem
like there's a lot of stuff to watch."

~~~
ioquatix
The thing that bothers me is how long it takes for content to come to Netflix.
For example, in NZ, I still don't have access to season 2 of The Expanse.
Remind me again why I'm paying monthly for this service!?

~~~
rhino369
To be fair, you are paying what? 11 dollars? Netflix isn't meant to be "all
access to everything." If you wanted access to everything immediately it's
going to cost a lot of money.

For a while, it was "access to nearly all old TV." a few years ago. But that
was when old TV had little value. Nobody was paying for old TV and you
couldn't even find it elsewhere.

Now, Netflix has made old TV valuable and has made new TV less valuable. Shows
like The Expanse need to monetize on the reruns because the "first run" isn't
enough anymore.

~~~
scarface74
First run hasn't been enough for years before Netflix. Most shows lose money
during their original run and made it back via syndication. Most shows on TV
are sold by the production companies at a loss or the production company and
network or owned by the same parent company.

That's part of the reason that people are asking what will happen to the Fox
Network after Disney buys the rest of Fox. That also explains why relatively
low rated scripted shows can survive on the CW - Warner owns half of CW and
all of DC.

------
bluthru
Netflix is going to tank if Disney makes their stuff (including Fox) exclusive
to hulu or a new service.

~~~
yorby
Disney is pulling/will pull out a lot of stuff from Netflix[1] and will also
start its own streaming service[2]... and Netflix' catalog had already shrunk
a lot before that news[3].

1.[https://www.cnbc.com/2017/08/08/disney-will-pull-its-
movies-...](https://www.cnbc.com/2017/08/08/disney-will-pull-its-movies-from-
netflix-and-start-its-own-streaming-services.html)

2\. [https://www.nbcnews.com/pop-culture/tv/disney-start-own-
stre...](https://www.nbcnews.com/pop-culture/tv/disney-start-own-streaming-
services-remove-content-netflix-n791001)

3\. [http://www.businessinsider.com/netflix-catalog-size-
shrinks-...](http://www.businessinsider.com/netflix-catalog-size-
shrinks-2016-9)

~~~
bluthru
Thanks for doing the heavy lifting!

------
rado
And still uses gibberish, machine-translated subtitles. (Bulgarian)

------
chrisper
These days I prefer Amazon video content. It's also significantly cheaper. 5
bucks instead of 20. Then you add the fact that their Android app is bad and
that not even Netflix Originals are available globally, Netflix doesn't seem
to be that great.

~~~
puranjay
My biggest problem with Netflix is discovery. I don't want to watch a new show
because I don't want to commit myself to 50 episodes. And I don't even know if
I'll like the show.

I just want to channel surf, like on TV. Just let me press a button and let me
go through a bunch of videos so I can decide which one I like by watching it

------
ourmandave
$100B?! That's like Dogecoin X 50 back in the day.*

(* which is to say last week.)

~~~
oh_sigh
Difference being that there is actual depth in the books for nflx vs doge

~~~
jusonchan
My guess is that he was being sarcastic about cryptos.

------
joering2
How do they make money?? I mean - seriously? And how will they stand up now
that NN is gone and any company/website using much more traffic will be force
to pay more?

Please help me with the math -- at any given day, me, my wife and 2 kids are
streaming netflix on multiple devices in HD; most likely pulling tens of
gigabytes of data per day. How is that all covered under $10.99 per month??
and on the top - they make solid profit?? HOW??

~~~
tomaha
The problem is that if you're big enough business-wise you don't care that
much about NN. It's like in Germany when Google has to pay for content in
Google News and they just tell the publishers they will not include them if
they don't give it to them for free despite these new rules (which are
stupid). But if you're a small startup or company and you want to do this you
have no chance doing this. Same goes for NN. If someone wants to block Google
or Netflix now they can't really get that much from them because they need
them to sell their own product or otherwise people will leave. If you're small
no-one cares and your can't do anything about it. So it hurts innovation from
new companies but doesn't hurt any big established players.

Besides that they also have enough revenue to invest in their own fiber
infrastructure like Google does and really everyone wants to get good access
to their content so they connect to them.

~~~
mattnewton
That might change when you are in competition with the ISP, as Comcast does
with a ~30% stake of Hulu. Then you might start to care about net neutrality a
lot.

~~~
tomaha
Yes. That could be a problem. But in for most areas customers will be annoyed
with Comcast and blame them for poor performance and switch. Still there are
lots of areas in the US where you don't have a choice. But they would also
loose a lot of customers in denser areas with more choice.

------
TeMPOraL
Please, sell half of it; we could have a Mars _and_ Moon base at the same time
for that money...

