This Is Why Netflix Will Go Bankrupt [View article]
As a big-time Netflix bear, I agree with the overall short argument. However, I think this article is not entirely fair to Netflix. The acquisition of content is rising rapidly because of the growth of the streaming business, and particularly because of Netflix's entry into new markets. These require a significant upfront investment in content, but revenue will take a few years to "spool up". If revenue never catches up to content expense, Netflix could always close those markets.
On the other hand, revenue growth appears more moderate because you're lumping all three segments together (DVD, domestic streaming, and int'l streaming). DVD revenues are declining, offsetting some of the growth in streaming.
If you just look at the domestic streaming business, revenue grew 26% YoY last quarter, while cost of revenue (which is primarily amortization of streaming content) grew 21%. So Netflix was able to leverage content expense in the domestic segment, which is more mature. This also suggests that there is no meaningful risk of bankruptcy.
For me, the short argument is just a question of valuation. After today's rally, NFLX has now surpassed a $14 billion diluted market cap. Even if the company fulfills all of the hopes and dreams of the bulls, I don't see any long-term upside.
Nvidia: A Short Squeeze May Be Coming [View article]
@PureValue: Not sure why you are so upset. Buy and hold is still a strategy that works, but only if you ignore the "noise" in the market (except perhaps to buy more if the stock drops for no reason). Over the long term, it's still pretty difficult for a stock to defy company fundamentals.
Nvidia: A Short Squeeze May Be Coming [View article]
I still like NVDA; but I'd be surprised if we see any sort of short squeeze tomorrow (or anytime soon). NVDA's results this year are going to be pretty mediocre barring something completely unforeseen; OpEx is still rising while Tegra sales are stagnant and the PC market is under pressure.
I think this stock is more likely to take off next year, if and when it demonstrates some success with Tegra 4i and GRID. Just my two cents.
How Apple Let Its Shareholders Down [View article]
This is an interesting take, but all you are really saying is that Apple was clearly undervalued five years ago and is clearly undervalued today. You could just as easily write that the market is letting Apple down, or something like that.
The fact that the share price has gone up over the period you analyze is driving your conclusion. I'm pretty sure that all of the "value" you have created is from buying back shares in the 2007-2010 period at an average price under $200. Obviously, a good share buyback is designed to buy shares when they are undervalued. But it's a little unfair to blame Apple's management for not buying back shares without also blaming everybody else who did not buy Apple shares before they went up.
If you assumed instead that Apple had returned cash through a dividend over your horizon, I think you would have a much more equivocal conclusion. And if you had just analyzed the last year, you would have found that Apple was wise to not buy back shares when they were trading at a significant premium to today's price.
Why $100 Brent Will Not Last Through 2013 [View article]
I'm not hedging my claim that oil will drop below $100 by year end. In my previous comment, I meant that it is a question among analysts, investors, etc. when Brent will drop below $100, but my opinion is (still) that it will happen this year.
Very little of current production is marginal at $90 or even $80/bbl, and most oil producers have hedged a lot of their future production anyway. So I don't see any material change to oil production from a 10% or even 20% drop in prices. Obviously, if we had a late-2008 style collapse, that would be a different story.
I don't really buy the argument that monetary policy is driving oil prices long-term. Obviously big monetary shocks affect the commodities market, but ultimately high oil prices depress demand, leaving no one to take physical delivery. Theoretically, you could store the unwanted physical oil, but that's a lot more costly than storing gold, if your goal is just inflation/currency protection. If QE eventually leads to rapid inflation in the US that would presumably drive up the dollar price of oil, but I don't expect that to happen (as I've written previously on SA).
Why $100 Brent Will Not Last Through 2013 [View article]
That's a fair perspective. However, I don't expect crude to fall quite so far that it becomes particularly affordable in developing countries. As a result, there's always going to be an efficiency drive in the third world as well as in developed countries. In my opinion, development today won't lead to as much incremental oil demand as was the case fifty years ago.
The oil futures market suggests that people expect oil prices to decline over the next several years. The real question seems to be when the bulk of the decline will occur.
Why $100 Brent Will Not Last Through 2013 [View article]
It's just an endless guessing game. Now Brent is back up above $104 on stronger economic data. At a fundamental level, the supply picture is really benign. OPEC probably has as much as 4 million bpd of spare capacity, and inventories are still rising. With WTI still hanging in the $85-$95 range, oil companies will keep drilling in Bakken/Permian/Eagle Ford as fast as they can. Domestic production is already up around 300K bpd from the beginning of the year. I will be interested to see if US production hits 8 million bpd before year end.
BlackBerry: Supporting Evidence For 6 Million BB10 Units Per Quarter [View article]
I'm not sure we'll see 6 million BB10 sales this quarter; I think it will depend heavily on how many Q10 units BlackBerry sells into the channel. I expect Q10 to sell more units than Z10 because more to most of the BB user base, whereas the Z10 is designed more to attract current iPhone/Android users. However, it's possible that Q10 is supply constrained this quarter (say, 2 million or something like that).
On the other hand, I think 6 million is definitely manageable in future quarters. This doesn't even count future BB10 smartphones, which the company has already confirmed for later this year. Those will probably include a lower-margin midrange phone for developing countries like India, Indonesia, etc. There are obviously huge markets there, although BlackBerry will be competing with much cheaper Android phones.
Why $100 Brent Will Not Last Through 2013 [View article]
I don't want to declare victory too early, but it seems like we are reaching a moment of truth. Brent has already crossed below $100, and we are still near the beginning of the seasonally weakest period of oil demand. U.S. production continues to grow, and pipeline capacity is continuing to come on line. We might see a little rebound in the summer, but only after further declines in the next couple of months. I would say Brent is more likely to hit $90 than $110 between now and the end of the year.
Hewlett-Packard Is Likely To Miss Estimates [View article]
HP's PC business is almost all variable cost, since the manufacturing is done on contract basis in Asia. It's incredibly unlikely that PCs had negative margins for HP. In fact, it's possible that HP's PC margin will improve sequentially, if management just decided to stop chasing low margin/unprofitable sales. A relatively small improvement in operating margin could fully offset a 20%-30% decline in revenue. Lastly, industry sources have stated that January and February were much worse than March; HP's January results were already reported last quarter.
I actually think HP will beat estimates again, largely driven by strong printing margins (because of the weak yen).
Who Will Win Amazon's Next Generation Kindle Fire? [View article]
I don't know the particulars of what happened in 1983, but just-in-time manufacturing has come a long way since then. I doubt the contract manufacturers in Asia are building OMAP chips more than 3 months before they go into OEM products. Just my two cents; I don't have any inside info here.
Who Will Win Amazon's Next Generation Kindle Fire? [View article]
I'd be pretty surprised to see anything other than a TI OMAP5 chip in the next gen Kindle Fire. I'm sure AMZN will get a very good price from TI, since to the best of my knowledge, TI isn't actively developing the OMAP platform further. Any money that TI can squeeze out of OMAP is a positive, so I would expect management to accept very low GMs to get the deal.
US Airways Investors Hoping For Merger Bailout May Be Disappointed [View article]
I'm not sure there's any point in discussing this further. My airline investments as a whole (HA and DAL) outperformed LCC since July 13, and since this article was published in early December. But there's nothing wrong with us both making money!
Obviously, HA took a beating in January/early February, but I had actually taken profits on half of my position when it was closing in on 7. I'm looking to expand that position again, and I do think it's a much better long-term investment than LCC/American, for reasons that I've elaborated elsewhere.
US Airways Investors Hoping For Merger Bailout May Be Disappointed [View article]
Thanks for the comments. LCC is up about 35% since I wrote this post, but I would still argue that my thesis was correct. LCC dropped after the initial merger announcement, and indeed since Dec. 2 (when this piece was published) DAL is up about 75% and UAL is up 65%. So what's happened is simply that the valuation of the entire industry has gone up.
I've been bullish on airlines for two years, and have been long at least one airline stock for that entire period of time (and I went long LCC back when it was sub $5, but took profits too early; don't see how I could have an "inherent bias" against the stock). I am surprised at how fast sentiment has changed on airlines; I think some of the lower performing airlines (United and possibly also the new American) are due for a correction. On the other hand, I think Delta may have a little more room to go.
P.S. As mitchad1 said, I'm writing for Motley Fool now, but I still do check comments here from time to time.
Interesting article. There are two bigger picture issues that I think you are missing. First: what would be the effect on growth of raising the price to $9.99. There are plenty of people who expect the NFLX domestic subscriber base to increase at a CAGR of 15%-20% over the next five years. If raising the prices reduces that to 10% or less, then you are boosting today's profit at the expense of tomorrow.
Second, while content costs are not related to subscriber numbers in the short term, I don't think that's the case in the long term. This whole internet VOD market is new, and so nobody really knows how much content is really worth. With Amazon Prime growing at an astronomical rate and other competitors entering the market, I think we will naturally see an upward bias on content prices. If NFLX is earning hefty streaming margins in a year or two because of a price hike, content owners will raise their ask when the rights come up for renewal.
This Is Why Netflix Will Go Bankrupt [View article]
On the other hand, revenue growth appears more moderate because you're lumping all three segments together (DVD, domestic streaming, and int'l streaming). DVD revenues are declining, offsetting some of the growth in streaming.
If you just look at the domestic streaming business, revenue grew 26% YoY last quarter, while cost of revenue (which is primarily amortization of streaming content) grew 21%. So Netflix was able to leverage content expense in the domestic segment, which is more mature. This also suggests that there is no meaningful risk of bankruptcy.
For me, the short argument is just a question of valuation. After today's rally, NFLX has now surpassed a $14 billion diluted market cap. Even if the company fulfills all of the hopes and dreams of the bulls, I don't see any long-term upside.
Nvidia: A Short Squeeze May Be Coming [View article]
Nvidia: A Short Squeeze May Be Coming [View article]
I think this stock is more likely to take off next year, if and when it demonstrates some success with Tegra 4i and GRID. Just my two cents.
How Apple Let Its Shareholders Down [View article]
The fact that the share price has gone up over the period you analyze is driving your conclusion. I'm pretty sure that all of the "value" you have created is from buying back shares in the 2007-2010 period at an average price under $200. Obviously, a good share buyback is designed to buy shares when they are undervalued. But it's a little unfair to blame Apple's management for not buying back shares without also blaming everybody else who did not buy Apple shares before they went up.
If you assumed instead that Apple had returned cash through a dividend over your horizon, I think you would have a much more equivocal conclusion. And if you had just analyzed the last year, you would have found that Apple was wise to not buy back shares when they were trading at a significant premium to today's price.
Why $100 Brent Will Not Last Through 2013 [View article]
Very little of current production is marginal at $90 or even $80/bbl, and most oil producers have hedged a lot of their future production anyway. So I don't see any material change to oil production from a 10% or even 20% drop in prices. Obviously, if we had a late-2008 style collapse, that would be a different story.
I don't really buy the argument that monetary policy is driving oil prices long-term. Obviously big monetary shocks affect the commodities market, but ultimately high oil prices depress demand, leaving no one to take physical delivery. Theoretically, you could store the unwanted physical oil, but that's a lot more costly than storing gold, if your goal is just inflation/currency protection. If QE eventually leads to rapid inflation in the US that would presumably drive up the dollar price of oil, but I don't expect that to happen (as I've written previously on SA).
Why $100 Brent Will Not Last Through 2013 [View article]
The oil futures market suggests that people expect oil prices to decline over the next several years. The real question seems to be when the bulk of the decline will occur.
Why $100 Brent Will Not Last Through 2013 [View article]
BlackBerry: Supporting Evidence For 6 Million BB10 Units Per Quarter [View article]
On the other hand, I think 6 million is definitely manageable in future quarters. This doesn't even count future BB10 smartphones, which the company has already confirmed for later this year. Those will probably include a lower-margin midrange phone for developing countries like India, Indonesia, etc. There are obviously huge markets there, although BlackBerry will be competing with much cheaper Android phones.
Why $100 Brent Will Not Last Through 2013 [View article]
Hewlett-Packard Is Likely To Miss Estimates [View article]
I actually think HP will beat estimates again, largely driven by strong printing margins (because of the weak yen).
Who Will Win Amazon's Next Generation Kindle Fire? [View article]
Who Will Win Amazon's Next Generation Kindle Fire? [View article]
US Airways Investors Hoping For Merger Bailout May Be Disappointed [View article]
Obviously, HA took a beating in January/early February, but I had actually taken profits on half of my position when it was closing in on 7. I'm looking to expand that position again, and I do think it's a much better long-term investment than LCC/American, for reasons that I've elaborated elsewhere.
US Airways Investors Hoping For Merger Bailout May Be Disappointed [View article]
I've been bullish on airlines for two years, and have been long at least one airline stock for that entire period of time (and I went long LCC back when it was sub $5, but took profits too early; don't see how I could have an "inherent bias" against the stock). I am surprised at how fast sentiment has changed on airlines; I think some of the lower performing airlines (United and possibly also the new American) are due for a correction. On the other hand, I think Delta may have a little more room to go.
P.S. As mitchad1 said, I'm writing for Motley Fool now, but I still do check comments here from time to time.
The Effect Of A Netflix Price Hike [View article]
Second, while content costs are not related to subscriber numbers in the short term, I don't think that's the case in the long term. This whole internet VOD market is new, and so nobody really knows how much content is really worth. With Amazon Prime growing at an astronomical rate and other competitors entering the market, I think we will naturally see an upward bias on content prices. If NFLX is earning hefty streaming margins in a year or two because of a price hike, content owners will raise their ask when the rights come up for renewal.