Netflix, Inc. (NFLX): Time To Sell?

On the other hand, Netflix is facing increasing competition from Amazon.com, Inc. (NASDAQ:AMZN), which is investing around $1 billion every year to gain market share. Amazon entered into original content with its EPIX and Downtown Abbey deal. In the first quarter, Amazon.com, Inc. (NASDAQ:AMZN) entered into an exclusive subscription service deal with PBS Distribution to distribute the third and fourth seasons of Downtown Abbey. Amazon.com, Inc. (NASDAQ:AMZN) is likely to spend $1 billion per year on content — almost half of Netflix’s total spending. Once Netflix’s current exclusive deals near expiration, Amazon could match the offer from Netflix.

Bottom line

Netflix will continue to increase its subscriber base in both the US and international markets, with its focus on original content. However, Amazon’s aggressive move into this market will increase content costs for Netflix, Inc. (NASDAQ:NFLX), which has been the major concern for investors. Netflix already has content obligations of $5.6 billion over the next five years, out of which $2.3 billion is to be paid in less than one year.

Its stock surged almost 25% after the announcement of first quarter results. However, considering its slowing DVD business, which is a high margin business, as well as increasing competition in the US and expected increases in content cost, I recommend holding this stock at the current level and not taking a new position.

The article Should You Sell this High-Growth Stock? originally appeared on Fool.com and is written by Madhu Dube.

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