Is Netflix, Inc. (NASDAQ:NFLX) Becoming A Riskier Bet?
Netflix, Inc. (NASDAQ:NFLX) recently predicted that its subscribers will increase slower in the current quarter than a similar quarter a year ago. The market didn’t like what it heard and Netflix shares retreated despite the company’s 1Q2016 earnings comfortably beating expectations. Then there is another issue that is clearly giving Netflix investors sleepless nights, the $6 billion allocation for creating original shows.
Does it look like Netflix is increasingly becoming a riskier investment because of its seemingly slowing subscriber growth and massive spending on original content? Some analysts have claimed so with others declaring that the streaming company’s run could be as good as done.
Aren’t critics harsh on Netflix, Inc. (NASDAQ:NFLX)? Why are they refusing to seen the opportunity the company is building abroad? Netflix may be losing a ton of money abroad in the meantime because of its aggressive international expansion, but it won’t be all losses for forever. Spending on international expansion will cool and international businesses will still start bringing money.
Netflix’s tepid subscriber growth guidance for the current quarter should be viewed as a temporary setback. The company still has a unique set of challenges to tackle in the international markets it has recently entered and that may be a reason for the soft subscriber growth prediction.
Netflix, Inc. (NASDAQ:NFLX) announced the sweetening of its budget for original shows to $6 billion for this year from $5 billion last year. Some believe that pouring $6 billion in originals is insane and that Netflix’s spending borders on wastage, but nothing could be further from the truth. Without original content, Netflix would be like any other streaming service out there, but that is not what the CEO, Reed Hastings, wants his company to be.
Original shows have played a critical role in making Netflix the leader in the U.S. video streaming market. The fact that rivals such as Amazon.com, Inc. (NASDAQ:AMZN) are also drifting towards original programming further give credence to Netflix’s original shows strategy.
Besides original shows serving as a bait to pull subscribers from other providers, creating its own content also means that Netflix, Inc. (NASDAQ:NFLX) cuts licensing costs and takes greater control of its destiny.
There will be setbacks in Netflix, Inc. (NASDAQ:NFLX)’s journey to prosperity, but that doesn’t mean the company is becoming a riskier bet by day.
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