Netflix’s European Expansion No Reason To Buy Stock Near 52-Week High

Orange est le nouveau noir. Translation? Netflix is coming to France.

The online streaming video service and network is taking its original programming—including Orange is the New Black and other curated TV series and movies—to greater Europe. Netflix revealed plans Wednesday morning to significantly expand in Europe later this year, extending its operations to Germany, Austria, Switzerland, France, Belgium and Luxembourg.

Netflix already has operations in English-speaking European countries, including the UK and Ireland, and in Northern Europe, where broadband penetration exceeds the U.S. It had rolled out in Denmark, Finland, Norway, Sweden and the Netherlands.

The stock rose more than 2% on the news. But sentiment on StockTwits.com declined nearly 10% to 45% bearish.

$NFLX train working for 380 again but the mountain has ice on it. See the icy rocks…. 380+++ on the wayyyyyyy???

— JMar (@Sliver) May. 21 at 10:36 AM

Many investors said that Netflix’s valuation was sufficiently rich and that European expansion was previously priced in. The stock traded near 52-week highs Wednesday.

$NFLX The Europe news was more than built in to the share price. Good ol Hastings pumping up the share price.

— Ming Leung (@Mr_MingV2) May. 21 at 10:19 AM

Moreover, Netflix may find European expansion more difficult than some suspect. Though 72% of Europe had broadband access in 2013—roughly the same percentage as in America—far fewer people pay to watch videos online. Just 15% of individuals in Europe between the ages of 16 and 74 used the Internet to buy or order online content, according to 2013 statistics from Eurostat. Meanwhile, paid consumption of online video in America has surpassed traditional DVD sales, according to research firm IHS Technology.

France presents special challenges. The country, known for fiercely protecting intellectual property, has rules that keep movies from streaming until three years after their theatrical release, according to reports in the Wall Street Journal and Reuters.

To be sure, some investors bet that Netflix would see adoption in Europe faster than Wall Street anticipates and that management has more great things for Netflix in store.

$NFLX David Wells at yesterday's conference opened eyes to the vast opp still in front of them. Big picture negates all the small stuff.

— Dominic Jones (@irwebreport) May. 21 at 11:16 AM

But most investors on StockTwits.com said buying Netflix on the belief that European expansion didn’t already figure into its 55X expected 2015 earnings multiple was a mistake.

$NFLX if you're buying $NFLX stock here congrats you're buying at the high and you'll probably lose 50% on your investment.

— Standpoint Capital (@Standpoint_Capital) May. 21 at 11:26 AM


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