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  • Netflix Crisis Abates, Future Is Promising [View article]
    the losses projected in 2012 are not due to growth in streaming costs, they are due to the costs of expansion into these new markets, which, if everything goes according to plan, will provide NFLX with exactly the kind of revenue growth it needs
    Oct 31 12:18 PM | Likes Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    but we are talking about revenues, not operating losses. the company needs revenues to cover its streaming obligations, not EPS.

    the international launch in canada has shown that it does take financial resources to launch into a new market. the costs of UK & Ireland expansion, coupled with Latin America will result in at least some losses in 2012. but that is what the company needs for long-term growth and success.
    Oct 31 02:26 AM | Likes Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    the revenues are indeed growing, they just didnt match the expectations needed to keep the stock at overvalued levels. even with the reset expectations and guidance, NFLX revenues should see levels sufficient to pay the company's streaming costs
    Oct 31 02:02 AM | 1 Like Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    One fact the shorts often overlook is that the majority of the costs on the balance sheet are there to pay off the off-balance sheet streaming obligations. the streaming obligations are no doubt large, no one is debating that. but they are already included in the income and cash flow statements.

    These streaming costs are not true debt, because for that to be the case, the COGS (cost of goods sold) must be $0, and that is precisely where streaming costs flow through. these streaming deals are essentially Netflix's inventory, and it is paid for by revenue, not its cash or income. Even if you assume NFLX will not grow revenues ever again, they will bring in $3.196 billion in revenue on an annualized basis if you use Q3 results. for revenue to not be able to cover the streaming costs, subscriber losses would have to be dramatically larger than what has occurred.
    Oct 31 01:41 AM | 1 Like Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    Netflix has the subscribers, and its brand, despite the obvious damage, still resonates with consumers. the "competitors" to Netflix do not have the same brand appeal, or business model. (although if Apple were to change iTunes video into a subscription model, that would put serious pressure on Netflix.)

    NFLX still offers the most compelling value, and subscriber growth should resume by december. however, it is important to change your investment thesis if the facts change, and we will be eagerly awaiting Q4 results sometime in january, to see if subscriber growth has indeed resumed. if it does not resume, then we will withdraw our reccommendation on NFLX, because for now, subscriber growth, both domestically and internationally is what is fueling the company.
    Oct 31 12:55 AM | Likes Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    the thing that the bears often overlook is the one of Netflix's importance to the studios. The one similarity that Netflix shares with blockbuster is that at the end of the day, the studios depend on it for a continued source of profits. Netflix has shown that it is the only company capable of effectively monetizing studio content. without Netflix, studios lose a large source of revenue. the financial data around Netflix is indeed crucial, because the company must walk a very fine line going forward.

    In situations like Netflix, it is important to not only analyze the numbers of a company, but the dynamics of the industry as well. just as Microsoft bulls point to its valuation, balance sheet, and a host of other metrics showing the stock is cheap, they fail to see the structural long-term issues facing the company. With Netflix, the company's long-term issues are mitigated by several key factors. the dynamics of the industry cannot be ignored. The studios need Netflix to survive to ensure a continued stream of content revenue, and they have no real incentive to abandon the company.
    Oct 30 11:21 PM | 1 Like Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    the shorts have been constantly arguing that the competition would destroy netflix, but no credible competitors have materialized. Netflix is the leader in its industry, and will continue to be for the forseeable future.

    as for insider selling, the consistency of Hasting's selling makes it seem as if he is diversifying his financial assets. he sells stock like clockwork, regardless of the price or company developments.

    this article on NFLX insider selling, penned by Rocco Pendola, one of most vocal NFLX shorts (to be fair, we admire him for his conviction and must note the fact that he has indeed been right as of now, goven the stock is about 70% off its highs.) in the article, he states that "I am inclined to have no issue with Hastings' divestitures. I would be a complete liar if I said I would not do the same thing. Most of us would jump at the chance to bank, trust, donate -- whatever Hastings does with it -- over a million bucks a week."

    while other executives have also sold stock, it would be difficult to find a company whose stock price climbed so rapidly without executives who sold large amounts of stock. Perhaps that should have served as a red flag to investors. But the stock is now in an entirely different class. the fundamental question that needs to be answered is whether NFLX is a broken stock, or a broken company. and we think it is a broken stock, but not for as long as the bears may think.
    Oct 30 05:38 AM | 1 Like Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    in 2004, when those changes were put into place, reaction was very similar to now. many predicted the collapse of the company. yet the company was able to innovate its way through that crisis, and we think that it will do so this time. the similarities to that period reflect the sentiment surrounding the company. Netflix knew that streaming was the future of the company since around 2004-2005, and have been preparing since then for a streaming only future.
    Oct 30 05:26 AM | 1 Like Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    Netflix stock is currently pricing in a worst case scenario. it is undeniable that the bears have been in control for the last few months, as the stock has tumbled, but now the stock is undervalued on a DCF basis.

    furthermore, sentiment is often a contrarian indicator. the time to get out of the stock was when the street was largely bullish. now that nearly everyone, both on SA and the Street is bearish, it is time to get into the stock. the worst case scenario is being priced into the stock, and we think it is a scenario that will not materialize
    Oct 30 05:22 AM | 1 Like Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    much like the studios kept Blockbuster afloat, they need Netflix. Studios are desperately seeking ways to monetize their content online. and Netflix is the only company that has the money to write checks large enough. Furthermore, competition fears are overblown. As stated, the only company directly in the subscription streaming space is Amazon, and they simply do not have the resources to aggressively battle Netflix while challenging Apple and investing in the retail business.

    as for issues with the model, revenues from the streaming business continue to accelerate, and aside from 2012, the business should post positive cash flow in the years to come.
    Oct 29 04:48 PM | 1 Like Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    The shorts have indeed made money on Netflix. But the bulls did make money too, if they got out in time. Shorting Netflix has been a profitable investment, but shorting the stock at these levels seems far riskier than before.

    It is important to not that Netflix has gone through such a period before. Everyone thought that Blockbuster would crush the company, and yet it is Netflix that triumphed. The Qwikster debacle/price increase was indeed a large PR mistake, but the message that management was trying to send is correct: it is impossible to profitably provide streaming and DVD's for $7.99. While that may be true, Netflix still presents a value proposition for consumers that few, if any media companies have, or will be able to match.
    Oct 29 04:28 PM | 1 Like Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    The fact that Netflix was overvalued is very clear. But now, the stock is undervalued. The DCF model shows that NFLX is worth around $100/share, and the PEG ratio for the stock is currently at 0.69 (as per the NASDAQ)

    Furthermore, NFLX is projecting losses for a few quarters, it is still possible they could post positive EPS for 2012. NFLX needs to make large investments in its international diviision to ensure future success. the US operations are expected to post nearly $5 in EPS in 2012, and the international investments are but a temporary drag on this, as they will, down the road, contribute meaningful profits to the company.

    Quarterly results from Cablevision and Time Warner Cable have shown that they are bleeding subscribers. This is not only due to competition from Verizon and AT&T, it is due to the effect of NFLX.

    For example, Oppenhimer may have downgraded its PT to $100, but noted that "with shares trading at 15x 2013E US non GAAP EPS the stock is an attractive opportunity for those with a 12-18 month investment horizon. We continue to believe Netflix offers the best value to consumers interested in reasonably-priced IPTV and mobile content, as well as a monitization stream for studio partners."

    By and large, customers enjoy Netflix, and subscriber growth should return in December. Furthermore, studios realize that Netflix is the only meaningful way for them to monetize their content, as such, they have an incentive to see Netflix stay in business
    Oct 29 04:20 PM | 2 Likes Like |Link to Comment
  • Chipotle: Love The Food, Short The Stock [View article]
    bloomberg has an interesting report out that cites CMG as a refuge from the volatility sweeping the markets
    Oct 28 03:39 PM | Likes Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    but then how has Netflix managed to generate $3.53 in EPS so far in 2011? it's not as if Netflix can simply hide expenses and pretend they do not exist. The 10Q lists all expenses, totaling some $550 million so far this year. The accounting here is based on GAAP, like in every other public company
    Oct 28 02:22 PM | Likes Like |Link to Comment
  • Netflix Crisis Abates, Future Is Promising [View article]
    In their Q3 letter to shareholders, management broke down the outlook for Q4, and domestic streaming will contribute $30-$42 million in profit, or between $0.56 and $0.78 cents in EPS. We should note that Netflix's international losses will, at best be around $1.11/share (54 million shares outstanding on the high end, loss of $60 million on the high end)

    Netflix's largest expense is content cost. For a long time, the deals it signed were relatively simple, $X million for Y content. But, the studios became more demanding, and our theory as to what happened is that the studios began demanding a payment for every user that connects to Netflix's streaming servers, regardless of whether they actually watch streaming content. Netflix can afford to pay for the users who watch its streaming content, the streaming segment is profitable (as per Q4 guidance) but if those streaming costs were to be paid for the entire customer base, the model does not work anymore.

    We think Netflix seperated the two not only as a way to generate increased revenue, but to define just who actually uses streaming.

    Furthermore, the margin in streaming is currently at 8%, and management expects it to rise. The costs for streaming do indeed rise over time, but they are more than matched by a corresponding rise in revenue. The Q3 letter states that, "As we grow the domestic streaming member base over coming quarters, we plan to take the streaming contribution margin up about 100 basis points every quarter."
    Oct 28 12:27 PM | 1 Like Like |Link to Comment