Netflix Inc. (Quote, Chart NASDAQ:NFLX) is just coming off a bounce-back week, but is there any chance the stock will keep climbing? Yes, says Prakash Hariharan of Analytixinsight, who claims Netflix is the most disruptive company in the tech space.
NFLX looked impressive last week as the stock rose 12 per cent to take back some of the ground lost since its last earnings report. Still up an incredible 86 per cent for the year, Netflix experienced a major selloff in July after its second quarter earnings report featured lower than expected domestic and international subscription additions. The stock dropped 20 per cent in value, with investors fearing a downturn in momentum.
But Hariharan isn’t worried.
“I’m a big admirer of the way the company is set up right now,” says Hariharan, former portfolio manager at Front Street Capital and now CEO and Chairman of the Board for fintech company Analytixinsight, in conversation with BNN Bloomberg. “The growth has just been phenomenal —that’s what I like to see in a company like Netflix. Netflix has by far been the most disruptive company in the tech space the last probably year or so in the manner in which they have destroyed a traditional industry.”
“They have something like 125 million users and they’re growing very fast in China and in India. They’re generating content (their content budget is about $12 billion) which is probably equal to the entire content budget of all the Hollywood studios put together,” he says. “So, you’re just looking at a phenomenally strong story.”
Good enough to merit its own binge-worthy series, Netflix’s story famously begins with an upstart DVD sales and rental company —Netflix still has a DVD rental-by-mail business, if you didn’t know, with a healthy three million users— which then made the switch to online streaming in 2007, foreseeing a future where faster and faster internet connections would combine with a public happy to binge-watch at home rather than head to the local movie theatre.
Critics have argued that while Netflix may be currently reaping in the benefits of being a first-mover in the space, other content providers like Disney and Amazon are likely to keep chipping away at Netflix’s lead.
But Hariharan says that while it’s true that a lot of forward-looking success is baked into Netflix’s current share price, the company’s growth prospects are still strong.
“Again, the only challenge for a company like this is that from a fundamental perspective, the valuation just destroys the value proposition. It’s like Amazon,” says Hariharan.
“Netflix is going to be a good company for a long time,” he says. “There’ll be situation when the company might miss its quarterly numbers or not add that many users and the stock pulls back, so you’re playing with that risk in a company like Netflix constantly betting and beating every quarter. But every time the stock pulls back, it’s a good time to add.”