Netflix Inc. (NFLX)

It has one of the best price momentums in the S&P but the valuation is out of this world. It has a lot of takeout multiple built into it. But it is one of the FANG stocks. This is part of the Euphoric trade that he worries about.

There are 1.5 billion TVs globally, and there are 1.2 billion cable connections. This company has about 100 million subscribers and has 1st mover advantage. Their cash flow is long to produce the shows, and get ahead of everybody else, and catching them is going to be very difficult. (Analysts' price target is $225.)

There is competition coming from HBO, Disney and even Amazon. You can’t argue with this company’s chart. Hasn’t participated in this because of the valuations, which are still up at 72X Forward Earnings. There is a 40% estimated growth rate, but that still gives it a 1.8X PEG ratio, so it is expensive. This is in the consumer space and he would prefer other areas.

It is a great company. He just does not see how they can grow into their valuation and make money for shareholders. He would have said the same thing last year. Yet their subscriber numbers continue to grow. It is not growth at a reasonable price. AAPL-Q is at 15 times earnings and 12 if you take the cash off the balance sheet. AAPL-Q is still his number one holding in his portfolios.

(Market Call Minute.) This is interesting, because with the Disney proclamation that they are going to undercut Netflix and use their own flow of properties, we are now going to get into competition of content. That is going to force prices down, which is not going to be good for anybody but the consumer.

Short or possible Put? He doesn’t Short stocks, nor does he buy options. This has been a hard stock to Short. He wouldn’t go near this. The valuation is too high. They are going to have a tremendous amount of competition from Apple (AAPL-Q) as they roll out video. Amazon Prime is already there with their content. Netflix has to invest on a lot of money to continue rolling out new shows and new movies. At current valuations, the stock is just off the charts.

Valuation has always been a concern. Trading at 90X Forward Price Earnings with a 40% growth rate, which still gives it well over a 2X PEG ratio. A little expensive for him. Subscribers are expected to reach 108 million by the end of Q3. The recent price hike will help its top line and support its content. Continues to burn cash at a really quick pace. In the first half of 2017, they burned over $1 billion from free cash flow. They are still looking for a breakthrough in China, and international markets haven’t really been extremely profitable. Also, there is lots of competition coming on board. If you own, continue to Hold, but it is difficult to buy at these levels.

Not the kind of stock he would buy, because the valuation doesn’t work for. They have 52 million US subscribers and 52 million international subscribers. They have a great brand and are way ahead of everybody else, and are developing their own products. He can see them having great pricing power over the next little while because of their strong brand. Thinks there is still a lot of growth to the story.

You can’t argue with the chart showing higher highs and higher lows. Hang on to it. As a new purchaser, be careful. It is not a really cheap stock. The international expansion has not been as profitable as it was in North America. Disney may be pulling its content and putting up its own service. Use a stop loss. It is almost a mature company at this point.

NFLX-Q vs. FB-Q. Two of the fang names have taken us thus far. He would prefer Netflix. It gapped up to $160. FB-Q is bumping its head on rising trend line resistance. He expects a retracement here. He prefers NTFLX-Q.

Facebook (FB-Q) or Netflix (NFLX-Q)? These are both dynamite companies with great opportunities in front of them. If he had to choose one over the other, he would choose Facebook. Looking at over the next year, Facebook just has so many different engines that are running, and almost none of them are dependent on another company. Netflix has huge growth in subscribers globally, but still somewhat dependent on 2^nd or 3^rd party contracts.

Their last quarter was an absolute blowout. They have 52 million international subscribers and 52 million domestically, and is continuing to grow. Margins will expand, and he can see a world where, if you want to see the latest premium Netflix original, it might cost $1 more a month. The largest subscription service anywhere in the world. (Analysts’ price target is $196.)

He likes the FAANG stocks, but this is not one he currently owns. It’s not profitable as they are investing for the future. Every dip that it has had has obviously been a buying opportunity.

In terms of the chart and price action, this has been more than impressive, but looking at valuations, he has a mixed view. This is a stock that is trading at almost 100X forward earnings, albeit it does have a 30%-40% expected growth rate, which still gives it a 2.4X PEG ratio, a little rich for him. Feels a breakthrough in China is still elusive to them. Expansion in international markets hasn’t been that profitable. There is still potential for serious competition from places like Amazon, Google and HBO.

You can’t argue with the success of the share price on this. It continues to move higher. For portfolio managers that look at metrics, it has been a tough go, because the shares continue to trade very high in terms of multiples and valuations. Trading at nearly 90X forward PE ratio. It has a very strong growth rate of about 35%, but still, that puts it at 2.5X PEG ratio. Difficult to own this name when there are lots of other technology names that you can own at lower multiples. One challenge is that content costs are high.