The Netflix, Inc. (Nasdaq: NFLX) philosophy has always been to spend first and ask questions later. Netflix’s latest big investment announced this week is a new $300 million five-year contract with Hollywood producer Ryan Murphy, but Wall Street analysts have mixed reviews of the acquisition.
Netflix stock initially jumped more than 3 percent when the company announced its deal with Murphy, who is best known for producing hit TV shows “Glee” and “American Horror Story.” Murphy currently is under contract with Twenty-First Century Fox Inc ( FOXA), which is in the process of a merger with Walt Disney Co. ( DIS).
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Netflix poached Murphy away from Disney ahead of the anticipated launch of Disney’s planned streaming service launch coming in 2019.
Netflix plans to spend roughly $8 billion on content in 2018 and is no stranger to going after top producers. In August, Netflix inked a deal with producer Shonda Rhimes, who is known for producing shows such as “Grey’s Anatomy” and “Scandal” for Disney-owned ABC.
The new deal with Murphy sparked a familiar debate among Netflix analysts and investors about whether or not Netflix’s staggering growth numbers justify its tremendous cash burn. Wedbush analyst Michael Pachter says Murphy’s $300 million price tag means there’s a high probability Netflix will not get its money’s worth out of the deal.
“It’s everything that’s wrong with Netflix,” Pachter said of the deal. “He’s going to have expensive tastes and want to hire A-list stars.”
However, GBH Insights head of technology research Daniel Ives says Netflix and its investors are focused on subscriber additions and international expansion today with an eye on profits down the road.
“To this point, [Tuesday’s] flagship Ryan Murphy deal was the first ‘shot across the bow,’ in our opinion, as Netflix is looking to aggressively purchase content and talent with the Disney/Fox ecosystem now in a major target range,” Ives says.
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“Our bullish thesis on Netflix is based on our belief that the company’s competitive moat, franchise appeal, ability to increase international streaming customers through 2020, and original content build out will translate into robust profitability and growth as the next phase of this story plays out over the coming year.”
GBH has a “highly attractive” rating and $310 target for NFLX stock.
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Netflix, Inc. (NFLX) Piques Interest With Spending Spree originally appeared on usnews.com
