Netflix: A disruptor loses its edge

Alex Pollak

Loftus Peak

Netflix fell 12% in after-hours trade in the US on Monday night to US$85.90. It’s likely to go lower. Here is the problem. The company yesterday reported a 40% shortfall on its own 2.5m subscriber growth number estimate for the quarter. Netflix says it’s all about the price rise (US$1/sub/month to US$9.99) but it’s worse than that. Netflix got an early free kick, content-wise, 20 years ago courtesy of the fact that the Hollywood studios (including Fox, Columbia, etc) incorrectly priced their older series, by which is meant underestimated the level of viewer interest in shows more than two years old. This allowed Netflix to get an early hold on a bunch of subscribers. By the time Hollywood had worked it out, or could re-price the deal, Netflix had gone through the 10m subscriber level, which meant that it could raise capital to fund the next round of growth. It did not waste opportunity, using that capital to seed new shows. Hence House of Cards and Orange is the New Black, among many others. Read more at (VIEW LINK)

Alex Pollak
Loftus Peak

CIO of Loftus Peak, a specialist global fund manager with a track record of successful investment in some of the world's fastest-growing listed businesses.

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