Thursday, October 8th, 2015

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Netflix Undervalued After Recent Losses

Netflix remains a strong company in a growing field.Netflix has suffered a major loss to its stock prices in recent days with the announcement that it lost hundreds of thousands of customers last quarter, but ZDNet's David Hamilton suggests that Wall Street has actually underestimated the struggling company.

Netflix's first major losses came with a bungled attempt to increase prices, but the biggest drop came with the attempt in September to separate its DVD and streaming businesses. One analyst noted to The Wall Street Journal that the company still draws most of its profits from its DVD business and moving into the streaming would have been catastrophic.

Hamilton, however, notes that the DVD business has effectively stagnated with high fixed costs, while the streaming business is almost perfectly scalable. Characterizing Netflix as a so-called "disruptive technology," Hamilton argues the company is bound to suffer some difficulties replacing existing markets, but ultimately should succeed on the back of its streaming service.

He also notes that the company still beat Wall Street profit projections and expected profits can largely be attributed to expansion. Meanwhile, the company still boasts more than 24 million customers in the U.S. alone and added 500,000 customers to its international services.

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