Outside the Box: Netflix’s stock is worth only about one-third of where it trades today

In the past three weeks, Netflix has cancelled two of its original series (“Sense8” and “The Get Down”) after canceling only five series from 2013-2017. These cancellations come on the heels of executives’ comments about needing a better return on investment.

When taken together, it’s clear Netflix NFLX, +0.11% is beginning to acknowledge the challenging economics of producing original content, just as we warned in April 2016. Creating successful original content is very costly and very hit-or-miss. The surfacing of this ugly truth could be a catalyst for more investors to question the viability of Netflix’s business model and to send its shares to a more rational level, which is close to $50 according to our reverse discounted cash flow modeling scenarios and about one-third the level of where they trade today.

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