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  • Netflix: Reloaded [View article]
    This is a fair question.

    The revaluation here does make a couple of changes to the assumptions in the valuation that was done in 2011. Namely, I significantly reduced the increase in content costs and content amortization to give some credence to the the operating leverage idea, which has a dramatic positive impact on future profitability. I also assumed domestic penetration would be higher. (56% versus 50%)

    This was offset by a reduction in projected ARPU and international penetration, which as I said at the time, were wildly optimistic (and unrealistic) projections.

    The net effect essentially NIL.
    Nov 26, 2013. 01:07 PM | Likes Like |Link to Comment
  • Netflix: Reloaded [View article]
    No I understood it fully. I am not saying NFLX's price will stagnate. It could rocket up to $1,000 for all anyone knows.

    I am determining NFLX's value. In the long-run, the price will tend towards the value. And frankly, NFLX's value is probably alot less $300 per share and when the market realizes that, its a reasonable assumptiont that you will probably see a decline in the stock price.
    Nov 26, 2013. 12:53 PM | Likes Like |Link to Comment
  • Netflix: Reloaded [View article]
    Obviously the DVD business is still very valuable to Netflix, however, I am not suggesting that NFLX will choose to discontinue the service or otherwise dispose of it.

    I am saying the DVD business is in a secular, technological decline and demand for the DVDs will become increasingly immaterial (just like wireline phones or CDs or walkmans or any other technology that has been rendered obsolete by something different), to the point that income from the segment will be negligble.
    Nov 26, 2013. 12:04 PM | 3 Likes Like |Link to Comment
  • Netflix: Reloaded [View article]
    Not reasonable to project future value in today's dollars????????? Discounting cash flows at the cost of equity is one of the fundamental cornerstones of finance. You are assuming that in 2028 NFLX will have the same growth prospects it has now, which it won't because it will have substantially saturated the market, so you wouldn't pay the same multiple in 2028 that you are paying today.

    This "rule of thumb" that prices double every decade is also highly suspect. How is that a rule exactly? There have been plenty of decade stretches where share prices haven't increased at all (like the decade we just got out of). And while I may grant you that stock prices over VERY long periods trend upward, that does not mean that every individual stock goes up. Some individual stocks decline or disappear entirely. This is not a steadfast rule I would follow with any conviction.

    Your comment is exactly the kind of thing that makes me thing NFLX is overvalued ... the longs at this price don't seem to have a clue.
    Nov 26, 2013. 10:23 AM | 3 Likes Like |Link to Comment
  • Netflix: Reloaded [View article]
    Under the section where I describe assumptions, I stated that ARPU will actually decrease from its current level to ~$8 in the next 3 years as combo DVD/Streaming subscribers are lost. Then I assume a 5% per year increase in the rate from $8 from $14.40 by 2028.
    Nov 26, 2013. 09:16 AM | 2 Likes Like |Link to Comment
  • Netflix: Reloaded [View article]
    domestic household count is off ... because it is too low or too high? If too high, well, that only serves to make the valuation more unreasonable ... if too low, well, Nielsen estimates there about 116 million households with Televisions in the US and that's for a remarkably mature market, so I guess its conceivable that there could be a similar sized subscriber base for Netflix by 2028, but 10 million more subscribers is not going to make a huge difference at that time.
    Nov 26, 2013. 09:13 AM | 1 Like Like |Link to Comment
  • National Research Corp: Research That Pays [View article]
    Thank you, Ellsworth.

    I don't disagree with your assessment. As I said, I think the assumptions of the model are conservative. There is definitely more upside risk than downside risk to fair value.
    Nov 11, 2013. 06:29 PM | Likes Like |Link to Comment
  • National Research Corp.'s Class B Shares: The Low-Risk Double [View article]
    Couple points: first, what is the incentive for the manager to take the company private? This is a solidly profitable, high growth company that commands a high multiple ... not your typical candidate for an LBO.

    Second, he would have to pay alot of dividends to the Bs to have enough cash to fund a buyout ... B holders might find they've earned their investment back via dividends before the buyout ever comes.
    Nov 1, 2013. 09:11 AM | Likes Like |Link to Comment
  • National Research Corp.'s Class B Shares: The Low-Risk Double [View article]
    The outcome you are describing is a definite possibility. That would also explain the suspended dividends. Why pay dividend tax and then pay inheritance tax on top of that when the trust can receive an outsized windfall from acquisition, all while maintaining voting control.

    Still, Chris has highlighted that even if the business is acquired, the downside in the shares is quite small relative to the upside if the business is not sold. Even if succession/inheritance planning is his primary concern, he still has an incentive to sell the business for as much as he possibly can.

    "Heads I win, tails I don't lose too much" as Buffett would say. Especially since the valuation is much more reasonable than I initially thought.
    Oct 31, 2013. 02:18 PM | Likes Like |Link to Comment
  • National Research Corp.'s Class B Shares: The Low-Risk Double [View article]
    I stand corrected ... yes, took the amounts quickly off of Yahoo.
    Oct 31, 2013. 11:19 AM | 1 Like Like |Link to Comment
  • National Research Corp.'s Class B Shares: The Low-Risk Double [View article]
    While I agree that the B shares should trade at a much greater premium to the A shares, you have failed to address the whether the current price of the firm as a whole is a fair one.

    B Shares market cap is ~$670 mil
    A shares market cap is ~$430 mil

    That's a $1.1 bil market cap for a company with perhaps $20MM - $21MM in net income in F2014. Thats about 50x P/E.

    If the Bs were to double, the multiple would be closer to 100x.

    The company appears to have grown very well in the past 10 years, but do you have any sense if this will continue in the future.
    Oct 31, 2013. 10:29 AM | 4 Likes Like |Link to Comment
  • Oracle: 40% Upside And More For Patient Investors [View article]
    I am going to jump in here and say that, in my mind, it is pretty clear that 1) FCF should incorporate growth via acquisition ... An acquisition is simply another way for a company to reinvest its cash flows in order to grow the business. It is, in that sense, no different than using the cash to invest in new products internally. The ability to allocate capital successfully is a factor that must be used to evaluate management and determine growth rates whether that capital is allocated within the business or outside it via acquisition.

    and 2) you don't need "proof" in order to incorporate such growth in your valuation. We are trying to project the future here. The past we know with certainty, but there is no real "proof" that anyone can give of anything going forward. If you believe in the ability of a company to allocate capital effectively, then you should incorporate that into your growth rate projections.

    ..... Now, whether ORCL is a good capital allocator is another story ......
    Oct 21, 2013. 09:24 AM | 2 Likes Like |Link to Comment
  • Premier Inc.: Healthcare Crisis Creates A Growth Environment [View article]
    Well written article ... unfortunately, after reading it in detail, I still don't really understand how PINC earns its $$.

    Do the members pay for software that gives them access to healthcare data?

    I read "group purchasing organization" and I think "buying group". Does PINC buy medical supplies on behalf of or facilitate the purchase of medical supplies by its members?
    Oct 18, 2013. 09:39 AM | 5 Likes Like |Link to Comment
  • IPO Preview: SFX Entertainment [View article]
    hmmm ... prospectus pro formas show the post-acquisition company is going to be bleeding cash. The growth is impressive but they have serious work to do make this venture even profitable, let alone worth $1 bill market cap.
    Oct 9, 2013. 09:51 AM | Likes Like |Link to Comment
  • Datalink: An Underappreciated, Long-Term Play On Cloud Computing [View article]
    Great analysis ... I see no problem with an growth-by-acquisition strategy so long as the acquisitions are reasonably priced. Given the high valuations in the sector, it may be tough to find such reasonably priced acquisitions.

    Unfortunately for me, I don't think the upside outweighs the downside to a large enough degree to justify purchase. I think your belief that the "worst" case scenario is a 50bps decline in operating margins is aggressive.
    Sep 23, 2013. 09:40 AM | 1 Like Like |Link to Comment
COMMENTS STATS
184 Comments
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