Since I wrote my last article on Netflix (NFLX), NFLX is up over 50 percent in about four months. Today I am finally unloading all of my position. Here's my short term view, despite my long term bullish outlook on the company.
Why I am short term bearish on NFLX
The first reason I am short term bearish is that technically, in my opinion, it has become very overbought. In the last 17 trading sessions the stock has surged 62 points (when I sold at 302) and that is good enough for 25 percent. If I did not unload my position today, I would be a pig. The one skill that I found more important than anything is discipline. It is over 20 points above the 10-day moving average and has not tested it since this 17-day explosion ignited.
Below is a six-month chart of NFLX against the ten day moving average.
The second reason I am short term bearish on NFLX is I am very suspicious of the recent price increases. A very vocal short named Leonard Brecken, has been pointing out problems with NFLX's off balance sheet debt and readjusted accounting over the last year which changes the way in which the company has been amortizing the content costs. Brecken's reasoning is sound for why he is short, but momentum traders and growth addicts are willing to ignore this, hoping subscriber growth and international penetration would make up for this off balance sheet debt in the future.
- I love the product as a consumer and it keeps getting better.
- I feel that there is very little competition. I hear analysts compare the product to Hulu, but I don't think any of them realize the huge differences between the companies. NFLX is older content, with no commercials, and about 100 times the amount of content of Hulu. Hulu is newer shows that all have a shelf life, and they show ads every 15 minutes with next to no movie selection. The two products are actually quite different than analysts realize.
- The international growth is still in its infancy, and with its new move into Latin America, especially Brazil, I see huge opportunities for growth.
- Reed Hastings, the CEO of NFLX, was recently named to the board of directors at Facebook. This is key, and in my opinion even bigger than the Latin America penetration. Facebook currently is a mandatory platform for businesses as well as a fun social outlet for the average individual to keep in touch with or find friends. But it is so much more than that. Facebook, despite what many think, will become a new form of online bank that I believe will eventually crush PayPal because of the Facebook credits. Facebook will do two things for NFLX: Drive more people towards the site, and potentially allow customers to pay for the subscription using Facebook credits, which a lot of users don't "technically" consider money yet.
- I bought Apple (AAPL) today because I love the long term fundamental story, and it always has a tendency to run up into an earnings announcement. If it can break out and make a new high, as long as earnings are in line, the stock will shoot immediately to 400-420.
- AutoZone (AZO): Auto sales have been lagging and AZO is a great secular growth play on the consumer holding onto old cars or buying used cars.
- Priceline (PCLN): The growth here is still astounding. Bookings.com gives it almost a monopoly in Europe and I believe there is a lot more international growth for it ahead.