Here's Why Netflix Investors Are 'Foolish' To Give CEO Reed Hastings A Pass
Netflix, Inc. (NASDAQ: NFLX) soared higher nearly 20 percent Tuesday as investors cheered the company's third quarter earnings report.
However, Netflix's better-than-excepted print isn't enough to convince all of Wall Street. Wedbush digital media analyst Michael Pachter was a guests on CNBC to discuss their contrarian views.
Pachter quickly pointed out that Netflix's cash burn doubled to $500 million and it's surprising that investors don't seem to care.
"Reed [Hastings] keeps on giving investors what they want which is subscriber growth - and props to them," Pachter said. "They are buying subscribers at a clip of negative $2 billion a year - good for them. But if they don't make money, I don't understand the share price at all."
When asked by CNBC if Netflix's strategy of spending large amounts of money on content is the right path towards profitability over the longer-term, Pachter pointed out that Netflix doesn't own the content of its original shows, rather it's licensed with the exception of "Stranger Things."
As such, Pachter suggested that Netflix is taking a big risk in assuming the content it buys is better than its peers, including HBO. However, the analyst also believes Netflix lacks the internal expertise to compete and a recent deal to pay Chris Rock $40 million for two comedy episodes shows how it will pay large sums of money perhaps carelessly.
"Reed is building his future on his savvy on picking compelling content and he hasn't proven he can do that yet," the analyst concluded. "I think investors are foolish to give him that pass."
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.