No confusion here. And confusion on your end is best explained by my poor writing skills. So I will try again. Until Nflx has established a record of earnings I believe the PE ratio is of little value and can even be misleading.
What I am trying to do, is estimate the worth of a the company by determining the value of the assets.This is done all the time although usually with hard assests like cash and property. Nflx has no gold deposits or oil wells. It does have a few million DVDs, $70 Million, a Patent and 1.1 Million subscribers. The cash is easy, the DVDs are used and the Patent may be worthless if it is not defended. That leaves the bulk of the value in the subscribers.
Lots of emerging companies are purchased for their customers, they do have value. AOL bought tens if not hundreds of ISPs on their way up. AOL did not want the switching gear, they wanted the customers.
When a cable tv company is purchased, the assets that are sold are a few miles of cables, some switching gear and the monopoly, which is customers. A wireless phone company I looked at had customer aquisition costs of $292. Once these people have signed a contract they are worth money to someone buying them out.
As far as 24 months goes, that was my guess for the average life of a customer. I would like to understand what the average life of a customer is, but I donot understand the churn very well and netflix is not very forthcoming with clear numbers of the churn of established customers.
I agree the best way to value a company is earnings but if a company does not have them others methods need to be used.
Hope this helps
Verne
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