Netflix Stock a Real 'House of Cards'


John Heinzl Image John Heinzl Reporter and Columnist,

Rising debt, soaring costs, increasing competititon, and yet the stock defies gravity...we've seen this movie before, writes John Heinzl, reporter and columnist for Globe Investor.

It’s official: Wall Street has taken leave of its senses. That’s the only plausible explanation I can come up with for the ridiculous valuation of Netflix (NFLX), a company whose future remains as murky as ever despite a massive run-up in the stock following a modest fourth-quarter profit.

We’ve all heard the bullish arguments for Netflix: It’s a market leader in video streaming; it has a strong brand name; its subscriber base is growing as more consumers cut their cable and watch Netflix on their tablets and Internet TVs for $8 a month.

But that doesn’t change the fact that Netflix is an insanely expensive and risky stock, given how its programming costs are soaring just as competition from Amazon (AMZN), Verizon (VZ), and other deep-pocketed players is heating up. It’s fitting that Netflix titled its new original series House of Cards, because that’s exactly how some analysts describe the company.

“We remain dumbfounded at the value placed by investors on Netflix shares,” Wedbush Securities analyst Michael Pachter wrote in a recent note.

Having roughly tripled over the past four months, Netflix shares now trades at about $174—or about 150 times the average 2013 earnings estimate of $1.14 a share.