The highlight for me was the paragraph quoting Pachter from Wedbush:
Netflix is a worthless piece of crap with really nice people running it," says Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles, who cut his target price to a merciless $3 a share and maintained the Sell rating with which he initiated coverage of the stock in September. "I don't mean that they're doing anything wrong. They have a wonderful idea, but it's not a sustainable business. I wish they would make it — they deserve to make it. But in the Internet, all the success stories tend to be multiple channels, [offer] multiple products, or have a brick-and-mortar component. At the end of the day, there's only one line of business going on at Netflix.
This quote in particular and the short arguments from those days in general remind me of the shortsightedness prevalent today.
Netflix has always walked on the razor's edge of (growing) profitability. Netflix has always used key business levers (subscriber acquisition cost, content cost) to manage the growth and profitability of the business. Netflix has always done its homework on potential future risks and accommodated them where necessary and changed the business to route around them when they could.
I think that the key elements being missed six years ago as well as today are that:
- Netflix is disrupting existing channels by building a totally new mechanism for the delivery of entertainment
- Netflix is making all of its decisions based on what would be accretive to earnings given the disruption they are causing
I will admit that the current price per share is mind-boggling to me. I also have to admit that when it hit $100 and $150 and $200 that it was also mind-boggling to me. While it's impossible to factor in every possible risk, the size of the prize that Netflix is pursuing absolutely dwarfs the risks they are running in the course of that pursuit.
It seems to me that history is once again repeating itself. The only possible universe where it makes sense to invest here is one where Netflix continues to execute perfectly. It would have to be a universe where past results do indeed indicate future results. I would find it almost impossible to recommend to anyone that they should invest at these levels. However, my gut is telling me that investing at these levels is just crazy enough to work.