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Technology Stocks : Netflix (NFLX) and the Streaming Wars
NFLX 1,113-3.6%Nov 14 9:30 AM EST
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From: Krigannie12/31/2015 6:59:01 AM
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NFLX's brand is its barrier to entry. If it can keep building "Netflix is streaming like Google is search" in consumers' minds globally, that's its barrier to entry. The real barrier to entry for most of NFLX's competitors is that they are Hollywood corporations enmeshed in the existing fragmented content distribution system, with global partners whose businesses depend on being able to resell their content in various territories at a premium. Then along comes NFLX and underprices them, threatening their business.

How happy would they be to see HBO following suit? HBO can't afford to antagonize their business partners without a guarantee that their own streaming service can replace those revenues. Eventually the likes of HBO and Hulu will be forced to get serious about global expansion, but it will be only after a lot of kicking and screaming. Meanwhile, NFLX continues to rule. NFLX has increased the number of shares outstanding from about 390M to about 430M during the last 2 years. This was most likely the result of insider selling (exercising options).
You'd expect that selling to continue. Combine that with the fact that they've already stated a need to raise additional capital. An equity offering as opposed to taking on more debt may make sense given a rising interest rate environment, their "below investment grade" credit rating, and their relatively high equity price. Add it all up and I think it's wise to model at least an additional 5-10% dilution during the next 12-18 months.
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