Strong Start to 2015 for Netflix, But Shares Overvalued

Netflix remains committed to investing in proprietary content which, based on past success, we believe will deliver excess returns on capital. Highlighting the importance of investing in content, management said original content is more efficient on a dollar per viewing hour basis and proprietary content generates more viewing hours, which drives retention. However, management also disclosed that licensed content increased viewing hours, especially outside the U.S. Even older series such as Friends helped increase viewing hours to 10 billion in the quarter, up from 4 billion two years ago. We continue to believe Netflix will benefit from expanding its library via both original content and global licensing deals.

Two important series, Unbreakable Kimmy Schmidt and Marvel's Daredevil, recently launched recently to strong critical and viewer response. Kimmy Schmidt is the company's first significant foray into new sitcoms, and its critical and viewing success bodes well for the ventures beyond drama such as House of Cards and Orange Is the New Black. Set in the Marvel Cinematic Universe, Daredevil is the first of four Disney-produced series that are tied together. The strong start for Daredevil should help build interest for the other series focused on lesser-known characters.

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