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Andrew Shapiro  

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  • Who Should Buy Blockbuster? [View article]
    I don't think author appreciates the point of bankruptcy filing and now the section 363 auction taking place. Blockbuster's assets are being auctioned off to highest bidder. There need not be any debt involved. NFLX raising money for an acquisition of subscribers like this via a secondary stock offering is one of the reasons I feel it is inevitable NFLX will be doing a secondary (needed content purchases are another). NFLX could bid for the Blockbuster online assets (subscriber base) at a price very attractive to the BK estate and lenders and still find the purchase enormously accretive as long as market continues to greatly value (greatly overvalue) each NFLX subscriber.
    Feb 22, 2011. 07:40 PM | 1 Like Like |Link to Comment
  • Just One Stock: Come for the Real Estate; Stick Around for Popcorn and Flicks [View article]
    Chris - your comment above implies that you might not be aware of Reading's announced plans to auction its MOST VALUABLE undeveloped parcel - Burwood Sq - in Melbourne Aus. Substantial detail on this parcel and Reading's plans of sale can be found at my article at

    Better yet see Reading's sales teaser memorandum at

    Also you may want to check out more recent SA articles on additional growth and progress RDI has been making in the rest of its business at

    Substantial Debt Forgiveness at Reading International Should Boost Q4 Results

    that then was confirmed in

    Continued Growth Verified in Reading International's Q3 Results

    As for use of proceeds, that remains to be seen but I do know RDI has SEVEN other undeveloped properties in addition to Burwood Sq in various stages of adding value. Proceeds likely will be used to complete or bring those parcels on stream and into cash flow generation before stock buyback. But we will see. If RDI price does not respond substantially to Burwood Sq sale then perhaps stock buyback would be more compelling. The argument will certainly be made at Reading's annual meeting in May in Los Angeles. You should come and make your case.
    Feb 21, 2011. 03:34 PM | Likes Like |Link to Comment
  • Reading International: Cashing in on Australia [View article]
    For some time, due to changes in Reading’s International’s web hosting, the URL link to Reading Int’l’s Burwood Information Memorandum (the sales "teaser" referred to in article, above) had been not working. The link is again functional and found on Reading’s website under the Real Estate – News tab at A direct link to the pdf file is
    Feb 17, 2011. 07:27 PM | Likes Like |Link to Comment
  • Short or Long? Delving Into Netflix Financials [View article]
    Milkweed - You provide another excellent example of the content cost headwinds facing NFLX that I have commented about elsewhere. DIS price increase yesterday on simply DVD's to CSTR and NFLX is but another small example. Content providers want and will get a greater piece of the action that NFLX has been skimming with its upfront lock down of prices and subsequent subscriber growth. Further the content cost competition only rises the more streaming offerings that are made available. Yesterday - though it has been said before - CSTR execs talked of partnering soon with a streaming offering. Very curious to see who the partner is.

    While I don't disagree with your much smaller subscriber number scenario as being a possibility, at present valuation for NFLX, I don't even have to go anywhere near this doomsday viscous cycle. However, I will point out something that just came up this week that may put again another small crimp in that subscriber growth or incremental margin on subscriber growth. Apple announced that apps on its platform have to comply with a 30% profit sharing to be distributed over Itunes. Wasn't it Netflix being one of the most popular apps in the Apple universe that popped NFLX up another billion or two in valuation a while ago because its contribution to subscriber growth. Well those subscribers are looking to generate a whole lot less than $7.99/month or don't include them in the headcount to get to 50 million.
    Feb 17, 2011. 09:28 AM | Likes Like |Link to Comment
  • Tuesday: A Good Day to Short the Cinema [View article]
    Not opining on whether Carmike is a good short at these price levels, I do want to comment on your quote blasting the theater industry as a whole: "Theaters are obviously not the best industry to be in, with the digital commoditization of video media due to the likes of Netflix (NFLX)"

    The digital commoditization of video media is not a replacement for movie theaters, its just another form or way accessing in-home entertainment. The out-of-home box office first release is essential to create buzz and demand for SUBSEQUENT in-home video use. Studios receive 45-65% of the box office revenue as film rents. They are not going to kill the golden goose that gives both up front and drives back-end home video cash flows.

    Movie exhibition is a stable cash flow business that is modestly (with a near-term add-on from adding 3D into the mix) growing per unit. Overall worldwide movie attendance has been and remains stable to up. US Movie attendance has been fairly stable, averaging between 1.2 billion and 1.4 billion admissions annually since 1994. (Source: National Association of Theatre Owners [NATO]) Over the same period of time, international admissions have grown decently. During a >15-year stretch since 1994, there has not yet been secular decline in movie attendance, despite higher ticket prices, higher concession prices, the initial advent of home video technology and its several technological 'breakthroughs' migrating from tape to dvd and now digital streaming.

    Going out to a movie remains one of the least expensive forms of out-of-home entertainment available. Compare a pair of movie tickets + concessions to same at football, basketball, broadway, comedy club or other form of entertainment. "Date night" is not going away in the long run and it is the quality of movie product is what drives attendance in the short run.
    Feb 16, 2011. 08:39 PM | 1 Like Like |Link to Comment
  • United PanAm Financial: How MBO 'Take-Unders' Freeze Out Shareowners [View article]
    Because of the biased vote definition in this merger's 'majority of the 'minority' vote requirement, parties affiliated with Bron's LP, members of mgmt who are going to participate in the successor company's equity and 'indpendent' director's shares are all counted in the 'minority' while obligated to vote for the deal AND everyday shareholders who vote abstain or don't vote their proxy at all are NOT counted in the minority, so in effect are giving more of these insiders vote that incredibly is allowed to count in the 'minority' greater weight forcing this deal through.

    Feb 16, 2011. 08:49 AM | 1 Like Like |Link to Comment
  • Short or Long? Delving Into Netflix Financials [View article]
    Below is a little more meat on the point I have made regarding US market saturation getting in the way of achieving the subscriber and cash flow growth investors at the current market price are expecting.

    Absent US market providing the subscribers, Int'l growth becomes essential. However international growth does not come as easily or as cheaply and thus with a far lower return.

    Aggressive estimates have NFLX growing to 50MM paying subscribers. Yet according to the 2010 US Census there are a little over 117MM households in the US. ( ) More importantly, The US Dept of Commerce reported in 2009 that 40% of households have no broadband or high-speed access to the Internet, while 30% said they have no Internet access at all. ( ). Thus there are only about 70MM US households that have an internet connection potentially capable of video streaming.

    While the US market may not be saturated now, in my opinion, estimated subscriber growth priced into NFLX stock price is improbable at best using US market alone and I think current growth expectations assume unrealistic levels of international expansion, certainly at current margins.

    Relying just on US market, it is a very good bet that 5-year estimates of 50MM subscribers won't be close to being achieved from all the households in the US that might have Internet access that would support video streaming. Thus a MAJOR penetration of international markets and at similar margin rates would be required to hit such a subscriber number. Yet foreign markets have rules much further from net neutrality than the US. In addition, Netflix has no real presence or brand value in any foreign market. Finally, as with Amazon's recent purchase of Lovefilm, foreign markets have real competition that will compress margins and increase content costs.

    Take current enterprise value rounded down to $12.6 billion. Being further generous, take estimated more than doubling of subscribers to 50 million in five years. That is $252 of EV per estimated 5-years down the road subscriber. Dividing in the company's own operating margin of 12% (assuming content purchase cost match depreciation) would imply $2100 of imputed revenue per estimated 5-years down the road subscriber. Divide by avg monthly sub cost of $11/month (generous given incremental growth is $8/mo streaming plan) and you get 191 months or ALMOST 16 YEARS of revenue stream required from the estimated "5-years down the road subscriber" base. Note this is not on current subscriber base but AFTER the next five year's rapid estimated S curve growth gets Netflix, possibly to 50MM subscribers. if you lower the subscriber base or monthly avg subscription price or op margin and the number of years required for the 'annuity' stream to not be disrupted goes up from 16 years substantially.
    Feb 15, 2011. 03:19 PM | 3 Likes Like |Link to Comment
  • Short or Long? Delving Into Netflix Financials [View article]
    MIll - I think there is still potential for a lot of growth of Netflix business from this current level but IMO this growth is more than multiples already priced into NFLX stock market valuation. So where is upside for those who purchase NFLX from here? - only a musical chairs game in the clouds. There is no fundamental support or floor for such purchasers.
    Feb 15, 2011. 02:57 PM | 1 Like Like |Link to Comment
  • Short or Long? Delving Into Netflix Financials [View article]
    As your article highlights reliance on growth of paid subscriber base, it might be worthy to note that estimated future subscriber number implies almost impossible market share of US households that actually have digital pipe able to stream. NFLX admits that growth plans require sizable int'l growth. Almost all first mover advantages NFLX has in US are not present in int'l markets, where there will be real competition and, as importantly, also less net neutrality protection giving NFLX or its customers higher costs to access high quality streaming use of ISP pipes. User experience in quality or price will be more challenging in the int'l markets.

    Impacting both Int'l and domestic growth, as your article did discuss, the prospect of skyrocketing costs for content to attract and retain subscribers to achieve subscriber growth expectations is also going to challenge the user experience in choice or price. Yet the lowest hanging fruit for subscriber growth are those already subscribing.

    Now take current valuation which jumped another billion to over $13 billion. Give NFLX the benefit of the doubt on more than doubling its subscriber base to 50MM over the next several years, whihc requires substantial int'l growth to overcome US market saturation. Give them benefit of this growth while keeping margins stable - though mgmt has already guided margin challenges, despite their goal to target margins over content or marketing spend, which makes subscriber growth (and churn increasingly suspect). Give them avg subscription higher than the streaming price - though all new subscribers are really only coming on for streaming. Divide that >$13 billion valuation (that is BEFORE inevitable secondary offering) and divide by that high subscriber number and you get a sizable amount of cash flow/subscriber required to justify this value. Now reverse engineer current margin (remember we gave them benefit of the doubt) into required revenue subscriber for the valuation. Divide that by monthly subscriber rate and then again by 12 months a year and you get required commitment for well over 14 years. Remember, all the favorable assumptions I have granted in this calculation too.

    >14 years is wholly unrealistic duration given the product, prospective competitors and user base (e.g. > life expectancy of many prospective users of NFLX). Reminds me of dotcom boom/bust when pricing per user/click/subscriber was beyond profits ever to be able to be produced.

    There will be a secondary coming and probably sooner rather than later.
    Feb 15, 2011. 09:06 AM | 3 Likes Like |Link to Comment
  • Whitney Tilson: Why We Covered Our Netflix Short [View article]
    Nielsen Wire article providing clear evidence how ISP/Broadband providers are getting ripped off by Netflix. Won't last forever. - Can't.
    Feb 14, 2011. 07:56 PM | 1 Like Like |Link to Comment
  • United PanAm Financial: How MBO 'Take-Unders' Freeze Out Shareowners [View article]
    Odds are against shareholders because the deal was structured so much as a cramdown with a "faux" majority of minority vote formula. However, there is a class action lawsuit that was filed alleging breach of fiduciary duty, attempting to rectify some of these issues. Not clear whether the suit will succeed in time to protect shareholders or whether after the fact damages will be required and awarded.

    How many shares are you voting against the deal. Please contact me with your information if you care.
    Feb 14, 2011. 07:13 PM | 1 Like Like |Link to Comment
  • Whitney Tilson: Why We Covered Our Netflix Short [View article]
    Which is exactly why Mr. Hasting's stock sales are a continuous activity. He too doesn't know when the music will stop either. It would be interesting if the NFLX board required a long stock holding period on its equity compensation grants.
    Feb 14, 2011. 09:13 AM | 1 Like Like |Link to Comment
  • Whitney Tilson: Why We Covered Our Netflix Short [View article]
    agree with RWS regarding the impending increase in "pipe" costs to maintain current quality (let alone improved quality) stream. NFLX has not only benefited from content costs fixed at low levels prior to conversion to large population of streamers (upon renewal or new purchases these content costs will become far higher just by switch to variable costing or even a ratcheting up to higher fixed cost) but also pipe costs fixed at low rates as well. Again a move to variable costs will raise NFLX pricing to better reflect streaming's high and growing usage of capacity. Furthermore, the current low cost 'buffet' that exists in US broadband space does not flourish in the international markets. Netflix's valuation - now greater than $12 billion - implies a very high required rev stream off of current high margins for greater >14-year continuous subscription horizon over a base of subscribers >50 million subscribers. Based on the current NFLX subscriber base and the number of US households with a broadband connection that could support streaming, this subscriber number requires substantial international growth. Obtaining and then maintaining these subscriber numbers while maintaining current margin levels and for the requisite > decade time period - LONG ODDS. NFLX may have a head start on competition but the party wont last forever. Who will get the last empty chair??
    Feb 14, 2011. 09:11 AM | 3 Likes Like |Link to Comment
  • Short Netflix? Questions Remain Regarding Cash Flow and Sustainability of Results [View article]
    In addition to your cite of NFLX cash flow declining this past quarter, the continued need to pay for new content AND the need to pay for recently purchased content (eg. payables) likely means CFO declines to further continue.
    Feb 12, 2011. 09:40 PM | 2 Likes Like |Link to Comment
  • Sparton: Delphi Medical Acquisition Should Be Highly Accretive [View article]
    The stock price may be down from a high achieved only last month. Sparton's Delphi Medical acquisition not only has proved accretive as this article describes, but it has become so a quarter earlier than expected.
    Feb 12, 2011. 01:29 PM | Likes Like |Link to Comment