The pack leader in this debt-driven bubble, Netflix, made another 8% leap today with glowing media reports everywhere noting that subscriber growth beat analyst estimates in the latest earnings report.
If there’s any indicator big enough saying how much risky speculation is fueling this stock market, it is today’s wall-to-wall media coverage over Netflix. Particularly, it is the celebration over the increase of freeloaders while totally ignoring the increase of cheap money and debt responsible for the “new, desirable content”. If the media is pumping the stock this heavily over a number that doesn’t at all reflect the financial health of a company, but rather its speculative value, then it becomes obvious that rational and pragmatic analyses (i.e. the normal, now considered contrarian indicator) point exactly in the opposite direction.
Subscriber growth estimates under Netflix’s current negative margin business model are silly. Sure, you have to risk some money to make some at the beginning of any venture to lure in customers, but in the world of Netflix, if it has to consistently rely on going more into the red to fuel subscriber growth, then something is wrong with the company, particularly this late in the game.
Do you know what else tends to grow in popularity? Free stuff. People want to pay very little, if anything at all, and if they feel they personally profit off of it, they will take the deal. They’re willing to volunteer other forms of payment as long as their checkbooks are relatively unscathed, like their personal information and privacy for Facebook and Snapchat.
The difference here between Netflix and other non-paying services like Facebook, even though they are in the same bubble, is that Netflix is borrowing money through the nose to grow its subscribers, whereas the operating costs of most other companies with growing subscribers is on a scale hundreds of times smaller than Netflix. Many of these “freemium” services come up with other (albeit usually unethical) ways to profit off its users.
This is perhaps the main reason why Netflix is now primed to be the biggest loser in the unraveling of these debt-fueled bubbles.
Don’t expect Netflix to improve on the real fundamentals: profitability and sustainability. Anyone can give away loaned money to build up a base of freeloaders, but when the debts need to be paid, don’t expect the cheapskates to suddenly fork over their cash — they will just go out and find the next indebted company to finance their passive entertainment for them. And then we’ll find out the real valuation of this 300 PER severely overweight stock.
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Find out more as to why Netflix is a pack leader of this bubble economy with its stock valuation fueled by cheap money and debt from bad Keynesian economic policy (i.e. artificially low interest rates).