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By Oren Laurent
President, Banc De Binary
This month, Netflix announced its biggest project yet: a $30 mln satirical war film starring Brad Pitt, set to be released on the online streaming service in 2016. But is Netflix biting off more than it can chew?
The company’s stock has been trading at an all-time high this week, peeking above $640, and some analysts are questioning whether traders are setting the stage for the next technology bubble. The fundamental data however, seems to tell another story.
There should be no question that what Netflix is doing is revolutionary. The company has centred its energies around a key trend occurring in the way people consume entertainment. Since the invention of the television, viewers have traditionally subscribed to cable services attached to their home television sets. Yet with the introduction of the Internet, more people are turning online to consume the movies and TV shows they know and love most.
Netflix was the first company to really introduce the model of a subscription-based live media streaming service, and it did it on a big scale. After putting Blockbuster out of business, Netflix continued to jump from strength to strength. In the last couple of years, Netflix invested significant funds in obtaining the rights to a wide selection of films and TV series. Not only that, Netflix began producing its own hit shows, including “Orange is the New Black,” “House of Cards,” “The Unbreakable Kimmy Schmidt,” and many more.
Richard Ross, Evercore ISI’s head of technical analysis, says the stock has further room to climb.
“I think the stock has another $90 of upside,” said Ross. “That’s why I would still be a buyer today, even with the stock at a fresh all-time high.”
Ross is not the only one bullish on Netflix these days. Michael Yoshikami, of CNBC, attributes the company’s success to finding a niche, and beating the competition.
“The reason the company is doing so well,” writes Yoshikami, “is that it has established itself as the lead player in a new unbundled, mobile-communication space, focused on consumption of media on a variety of devices. It’s a space that Hulu had claim to, but Hulu simply did not execute.”
The latest statistics reveal that Netflix has approximately 60 mln subscribers in over 40 countries. The service’s success suggests that there is a gold rush of opportunities within this market. Viewers are watching video everywhere nowadays. On the ride to work, or while waiting for meetings, people are finding it easier and more convenient than ever to stream videos straight from their mobile devices or laptops.
So if you’re watching the stock and not just the shows, remember to consider the public sentiment as much as the technical data.
Johnny Carson once famously said: “If it weren't for Philo T. Farnsworth, inventor of television, we'd still be eating frozen radio dinners.”
Perhaps if it weren’t for Netflix, we would all still be sitting expectantly in front of our television sets, putting up with commercials.
