‘Netflix Might Be Overvalued’ Says Analyst


Netflix Inc. closed with a 20 percent gain on Tuesday trade following the company’s shooting revenues in its most recent fiscal quarter earnings report that was significantly higher than previous quarterly prospects which led to several analysts increasing their estimates of the stock’s price targets. The surge was followed by another uptick on early Wednesday trade.

Despite evident gains, the online entertainment pioneer faces a swelling debt and dwindling cash flow thus propagating concerns to some analysts.

Netflix announced its plans to expand further by issuing additional debt. The scope of the planned expansion includes localizing large international markets’ service and producing their own content.

Michael Pachter, a Wedbush Securities analyst, said in a statement to clients on Tuesday that his worries go over the investors becoming oblivious to the company’s cash burn as its subscriber growth becomes overwhelming.

The analyst also repeated to give the stock an underperform rating but increased share target to $60 from $10, mirroring post-fiscal quarter report buying hysteria. He still believes that Netflix is being overvalued.

“Netflix continues to spend exorbitantly for original and exclusive content, while international profitability remains elusive and competition for both content and subscribers is becoming more fierce,” he said. “Cash burn is unacceptably high, and we are skeptical that the company can successfully build a content library that will justify its high level of spending.”

Netflix also remarked on the growing competition despite having the lion’s share of the market, with Amazon.com Inc.’s Prime Video service on the rise as well as Alphabet Inc.’s YouTube.

The company’s quarterly profit was much better than the previous quarters and even went beyond Wall Street’s expectations. But its burn rate is fast picking up as it shells out up-front expenditures to produce its own content.

Cash equivalents toppled 40 percent from $2.3 billion to $1.3 billion during the year-earlier period with the streaming giant’s operational expenses doubling to $462 million from $196 million. A downward trend on cash and equivalents has been evident for the past year with $969 million as of September 30, 2016 as opposed to the $2.1 billion worth of cash equivalents reported in the same time last year.

On the flipside, Netflix recognized that its attempt to penetrate China as part of its expansion plans still has a good long way to go. China, with a broad market potential of 1.4 billion customers, observes strict rules when it comes to the import and screening of foreign content making it hard to operate their own service in the country. However, as a contingency plan, Netflix will more likely opt for licensing their content to existing online service providers in China although this move will only earn them modest gains.

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Can Spotify Go Public in 2017?

Spotify wanted to go public in the second quarter of 2017 after the company increased its convertible debt from investors who valued the company around $8 billion.

Market experts doubted the plan of Spotify considering its current state and its wide competition against its major competitors. An analyst shared that it is a tough sector and that is skepticism will have to overcome. While an expert on online ad service and database said that record labels can’t really afford to take their music off Spotify.

Spotify Chief Executive Daniel Ek has made several effort to encourage the music aficionados to pay music online. The company gets approximately 30 million active users who pay $10 monthly and the its sales went $2.2 billion in 2015.

However, the music company paid around $1.8 billion for the commissions. Apart from this, record labels and publishers had their respective shares. Mr. Daniel Ek has tried to reduce the payment for the labels, but he failed eventually.


On the other hand, a person familiar with the negotiation revealed that Spotify holds 10 percent of the revenue of the labels and this year the company forecasted a 50 percent increase of its total revenue. The initial public offering of Spotify couldn’t be achieved without a clear path on the pressure caused by its competitor and IPO time pressure as well.

Spotify in Asia

Separately, as Spotify expands its prominence in Asia, the company pays attention on localization and plans to court the Korean pop scene to be part of their plate.

Spotify is currently making its name in Singapore, Malaysia, Hongkong, Taiwan, Indonesia, and the Philippines. The expansion plan of the company includes a various way of payment among its loyal customers in Southeast Asia.

Spotify offers different premiums from these Southeast Asian countries. Singapore gets S$7.30 per month, subscribers in Hong Kong pay $6.20 and the Philippines has it for $2.70. Since many users do not pay using credit cards in  Indonesia and in the Philippines, Spotify let them pay in cash.

Sunita Kaur, managing director of Spotify Asia, said that they want to be everywhere in Asia. Kaur admitted that they don’t have a set road map as yet because they let the licensing lead us, so once the licensing deals for a market is done, then they can get ready to launch.


Spotify Gets More Subscribers

Launched in 2008, Spotify has become one of the leading music, podcast and video streaming service provider. The London based media company is available in Western Europe, Oceania and America and has accumulated around 100 million active users as of June 2016.

Spotify can run on smartphones, tablets PC’s and on any television connected set top boxes which raised the competition with Apple Music. The music provider has more than 30 million tracks being enjoyed by the users and others can have it for free with a few interruptions caused by the advertisements. It also allows subscribers to build a personal collection playlist while artists may post tracks on social networks and share them with fans eventually.

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