Netflix tops S&P 500 earning reports

Netflix Inc. has become the best performing U.S. stock in the Standard & Poor’s 500 Index in 2013 and the second most expensive, although some define it as a “bubble stock”.

Furthermore, investors warn of companys negative free cash flow, a surge in liabilities for new movie and TV-show content and a long-term increase in unpaid subscribers. Perceived limits on customer numbers and the high price of shares have led 26 of the 37 Bloomberg-listed analysts to advise investors to sell or hold stakes.

Michael Pachter, a managing director at Wedbush Securities Inc. in Los Angeles, says a lot of investors are intrigued by the growth potential of online businesses, such as Amazon.com Inc., a startup-turned-industry-giant that sold $16 billion of merchandise in the first quarter. As long as there is growth, these investors, “in a weird bubble of Internet stocks,” show little concern about the finances of online companies, he said to Bloomberg.

“Netflix looks like Amazon to most investors,” said Pachter, who rates the No. 1 Internet video subscription service “underperform.”

The reports didnt mention that Netflix subscriber numbers included 1.3 million U.S. users who didnt pay because of free trials, regulatory filings show. HBO is still the leader in paying U.S. subscribers, according to the SNL Kagan research firm. HBO had about 28.8 million U.S. subscribers in the first quarter, SNL Kagan estimated. Netflix had 27.9 million paying U.S. online subscribers, it said.

Netflix will probably pass HBO in paid U.S. subscribers within the next two quarters, SNL Kagan predicted. Company’s percentage of non-paying subscribers has grown in recent years with its emphasis on U.S. and overseas online streaming, though it’s down from last year. The 4.8% of Internet and DVD members who werent paying as of March 31 compares with 3.1% in 2009, before it began emphasizing its streaming service, company filings show. A year ago its percentage of non-paying Internet and DVD customers was 5.9%.

However, companies such as Microsoft Corp., Google Inc., Apple Inc. or Comcast Corp. could start a successful businesses similar to Netflix, Bernstein analyst Kirjner said in his July 15 report.“We believe the competitive threat is one of the greatest blind spots for Netflix investors,” he said. One famous Netflix holder has had a happy experience with his investment. Sort of. Billionaire financier Carl Icahn made a $168.9 million bet on Netflix stock and options in October. His play: Microsoft, Amazon or Verizon Communications Inc. might be interested in buying Netflix amid a “great consolidation” coming to the business of streaming movies and TV shows.

Netflix is up 0.15% today at 3:27pm London time. Its share price has experienced a dramatic increase of 188% on a year-to-date basis.