3 Terrible Reasons to Sell Netflix Inc. Stock | The Motley Fool

1. There’s no money in streaming.
At a glance, Netflix doesn’t look like a profitable business. Operating income was $380 million last year, which translates to just 4.3% of its nearly $9 billion sales base. Its pricing strategy aims to make the service as affordable as possible, after all, and its most popular plans cost $11 or so per month. Compare that to the over $100 per month that many consumers pay for pay-TV cable packages, and Netflix appears outmatched.

The company enjoys strong — and growing — pricing power, though. Profitability in its core U.S. market jumped to 37% of sales in the most recent quarter from 34% as it benefited from price increases and continued migration toward high-definition plans. As Netflix bulks up its content offering, and with most of its international expansion spending behind it, it’s becoming easier for management to lift their profit targets. CEO Reed Hastings and his team are expecting to nearly double operating margin to 7% in 2017. From there, executives plan to “steadily increase operating profit and margin,” they explain in their long-term outlook.

Read complete article here:

3 Terrible Reasons to Sell Netflix Inc. Stock — The Motley Fool.