Mark Cuban's Very Bullish Netflix (NFLX), But Should We All Be?

Joel Anderson |

Billionaire Mark Cuban was on CNBC’s Squawk Box on Wednesday to discuss his purchase of some 50,000 shares of Netflix ($NFLX) stock following that company’s steep sell-off last week following news that subscriber growth in the United States appeared to have slowed significantly, likely due to the $1 a month jump in the subscription price.

This is obviously wildly out of character for the normally soft-spoken Cuban who tends to play his cards very close to the vest. However, the humble owner of the Dallas Mavericks, frequently fined by the NBA for failing to clearly express his opinion, was coaxed out of his shell to express why he’s so bullish on Netflix.

 

Bold words from Cuban, to be sure. However, Wednesday’s appearance wasn’t the first time he’s touted the stock on CNBC as he had already phoned in on Friday to talk about why he’s so excited about the stock, revealing that through options he’s long much more than just the 50,000 shares.

A Wise Investment?

On the whole, Cuban makes a pretty compelling set of points here. Much of the focus prior to the sell-off had been on just how high the valuation for Netflix was (including from Reed Hastings). As such, the steep sell-off following the Q3 earnings report could easily be seen as a simple readjustment rather than a vote of no-confidence from Wall Street. The company’s still a good one, it’s just not going to produce the sort of wild expansion that would completely justify a P/E ratio approaching 175.

But then, maybe it is. As Cuban points out, this is a company that’s dominating its space. A space that, incidentally, appears poised to upend content distribution models permanently in the long term.

Not to mention, when compared to some other popular stocks, the total valuation appears relatively low. Twitter ($TWTR), as Cuban points out, comes in at just over $30 billion. Comparing the two, personally, I see a lot more room to run for Netflix. As the streaming business continues pulling apart the platform on which cable TV is perched, Netflix could easily become a household name for the majority of the population.

Compare that to Twitter that, quite frankly, is probably much closer to its peak membership levels than Netflix is. Sure, there’s a lot of room to improve monetization of its service, but it, to my eye, lacks the opportunities for rapid growth in the 10-15-year time frame that I see in Netflix.

Either way, Cuban may, at times, come off as a little bit of a buffoon, but any buffoon with more than a billion dollars is a buffoon who’s figured something out. And I think he might be in the right here. Only time will tell, but if Netflix turns into the sort of global brand it has the potential to become, plenty of folks might look back at the moment when it dropped a quarter of its market value overnight as a pretty compelling buying opportunity that plenty of people missed.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TWTR Twitter Inc. 19.64 0.16 0.82 19,698,311
NFLX Netflix Inc. 123.24 -2.15 -1.71 8,987,712

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