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NETFLIX Free Resources
With roughly 50 million shares
With roughly 50 million shares outstanding after the IPO, the company's $750 million market cap given the $15-per-share pricing is also troubling. That is 8.6 times the company's trailing sales. Meanwhile, traditional rental chains like Blockbuster and Hollywood Entertainment (Nasdaq: HLYW) are commanding healthier gross profit margins and trading at just 0.8 their annual revenue rates. Yes, Netflix is growing aggressively, but for how long? Making matters worse, Blockbuster will be testing its own all-you-can-eat DVD plan this summer. So, while Netflix has been able to ride the coattails of DVD growth, its own momentum is being threatened by everything from instant competition to trying to replace the growing ranks of ex-subscribers with the lower income audience that was waiting for DVD players to dip below $100 to buy into the format.
All this will crush any kind of pricing flexibility Netflix might have had, and, if I can submit past financial statements as evidence, the company's gravy days have run bone-dry as it is. The problem is that the strengths in the Netflix game plan are more sector-specific than Netflix-specific, and they aren't really tilted in the company's favor, anyway.
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