Why I Am Bullish On Netflix Over The Long Term
While bears have continued to criticize the high valuations of Netflix (NASDAQ:NFLX), shares have continued to climb 892% over the past five years and 21.25% YTD. Over the past year, the company has added 11.2 million new subscribers to its 50.7 million subscribers worldwide. The company has delivered strong results consecutively due to its ability to add new subscribers, as well as keep current subscribers regaled with its massive movie and television show archive, plus its highly successful original programming. As such, revenues rose 25% year-over-year in the second quarter of its fiscal 2014, and profits increased to $71 million. To help give some comparative insight, CEO Reed Hastings wrote an interesting statistic on Facebook (NASDAQ:FB); "last quarter we passed HBO in subscriber revenue ($1.146 billion vs. $1.141 billion). They still kick our ass in profits and Emmy's, but we are making progress. HBO rocks, and we are honored to be in the same league." Figure 1 shows Netflix catch up and surpass HBO's quarterly subscription revenue over the past few years.
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While Netflix has surpassed the 50 million worldwide subscribers benchmark, it is still well below HBO's estimated 120 million worldwide subscribers. At least in the United States market, Netflix has more subscribers than HBO. However, HBO has shown that it can leverage its premium position for higher margins, but the tides could change as Netflix gears up its in-house series productions.
