Netflix, Inc. (NASDAQ:NFLX) got a boost on Tuesday after Bank of America Merrill Lynch upgraded the stock straight from an Underperform rating to a Buy rating. However, this investor thinks that a certain premise of the surprise upgrade is “foolhardy”.
In an interview on CNBC about the Netflix, Inc. (NASDAQ:NFLX) upgrade, O’Leary Funds Chairman and Shark Tank Investor Kevin O’Leary tells Carl Quintanilla that even though the entertainment content production and distribution company is the “big” and “institutional” name in its industry, and that investors who want to take a position in this over-the-top streaming would benefit from buying the company’s stock, it’s “very important” to consider that there are other players in the field.
“If I look at everybody else that has a huge digital footprint with users, let’s take Huffington Post now, over 214 million unique [visitors per month], it’s no secret they have hired a team to start sourcing content. They have the same plans to go over the top and serve up streamed content to their customers. It’s not going to take them forever to figure that out. There will be lots of competition down the road. I think this is not a justified upgrade,” O’Leary tells Quintanilla.
He adds that he does not own Netflix, Inc. (NASDAQ:NFLX) shares so he is just calling it as he sees it.
Quintanilla rebuts, however, saying that international opportunity in subscriber base growth is 20 million international subscribers growing to up to 50 million in 2017 for the company. Eventually, projections point to 100 million or more subscribers for Netflix, Inc. (NASDAQ:NFLX), he adds.
O’Leary agrees that this is great for the company but stresses that it does not take away from his point.
“It’s very compelling but to think that this is unique and the only entity that is going to serve up content over the top, which means that they don’t use the television networks anymore, I think is foolhardy. When you apply really high multiples, haven’t we learned in this quarter looking at great companies with fantastic brands and platforms like a LinkedIn, like a Twitter, [that] you have to be able to stomach huge volatility when there’s any miss? So if you are going to put a lot of optimism on a long-term schedule of success around content development, and pay that in today’s high multiple, I think you are taking inordinate risk your portfolio,” he tells the CNBC host.
He says that he is not denying that people are going to buy content through companies like Netflix, but what is stopping others like the Huffington Post from also getting a substantial share of this market in the next two or three years?
Carl Icahn’s Icahn Capital LP owned about 1.41 million Netflix, Inc. (NASDAQ:NFLX) shares by the end of 2014.
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