Why Netflix Is 'Priced For Perfection'

• Shares of Netflix, Inc. NFLX have appreciated 112.39 percent over the past one year, reaching a high of $130.93 on December 4.
• Societe Generale’s Christophe Cherblanc has maintained a Sell rating on the company, while raising the price target from $84 to $95.
• Despite the very strong performance of the stock in 2015, Cherblanc believes that the current valuation discounts “very rosy” assumptions till 2025.

Analyst Christophe Cherblanc explained that given Netflix’s “financial profile, and low short-term profits, 2016–17 valuation multiples are irrelevant in our view, and we continue to believe taking a ten-year view is the best approach.”

Cherblanc also believes that as OTT becomes the norm over time, the company’s uniqueness would gradually erode, which means that Netflix’s competitive advantage would depend on its differentiated and exclusive content.

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This underpins the strategy announced by the company of “dramatically” increasing its overall content spend to a $6 billion cash outlay in 2016, gradually increasing its exclusive content to 50 percent and accelerating its “land-grab approach,” with the company having covered 190 markets since its announced in early January that it intended to add 130 countries.

“From a financial standpoint, this means aggressively reinvesting improving US streaming contributions in International launch costs, and, on our estimates, burning another $1.6bn over 2016–17,” Cherblanc added.