4 ms·
Basic capitalism does have something to do with Netflix' problem. However, nowhere in capitalism does it say that you need endless growth. Netflix' valuation w
by evandijk70 4y ago
Basic capitalism does have something to do with Netflix' problem. However, nowhere in capitalism does it say that you need endless growth. Netflix' valuation was dependent on growth (as signalled by its' PE ratio). Basic capitalism says you need a profit. Netflix will be fine if their profit never grows anymore, and they pay out their profits constant dividend. Even investors will not be terribly disappointed by the zero-growth scenario under its current valuation, which given their PE-ratio would be equal to a 5.8% yearly dividend and no capital gains.
- jnwatson 4y agoTheoretically, you are correct. However, growth and non-growth companies are valued significantly different. Growth companies have a P/E multiplier, while non-growth companies can be valued like an annuity. No member of the board would ever sign off on a plan that involves valuing the stock at 20% the current price. That’s why no CEO will have a no-growth plan.