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Does Netflix, Inc Care About Its Shareholder?

|Includes:AAPL, AMZN, CMCSA, Netflix, Inc. (NFLX)

Does Netflix, Inc care about its shareholder? This is a question I have recently raised with myself. And I was unable to provide myself any meaningful answers. Whereas you have companies like Bank of America or Apple Inc which clearly cares what its shareholder thinks about them, Netflix seems to be immune to the sentiment.

Recently, in Apple corporate website a very interesting news item came up. The fact that it is regarded as one of the most respected companies in the world was promptly highlighted on its front-page. Bank of America recently made a very positive deal with Warren Buffet which helped it raise extra amount of much needed cash. However, Netflix has a habit of taking away from its shareholders and customers.

By bungled price hike, Netflix alienated its customer base. By embarrassing Qwister flip-flops, it provided a message to its shareholder that it really does not know what to do next. Trial and error should be left for boardroom discussions and internal materials. Such big steps should only be taken with clear understandings and logic. CEO of Netflix seems to have lost the basic touch of being a CEO. Netflix now makes a decision and waits to see how market will react. If it reacts badly, CEO changes its mind. Do shareholders of Netflix want a CEO like that? I doubt it boldly. And, what about the user experience it provides to its customer. Instead of providing a better customer experience, it is more than taking one after other missteps.

Recently Reuters provided news that Netflix is in talks to go into partnership with cable companies.

Reuters reported yesterday that Hastings was looking to bundle his service with pay-TV operators, and to deliver movies and TV shows through cable providers' set-top boxes. But people familiar with his thinking tell me the Apple TV model is a more plausible tie-up: Netflix would be happy to let cable operators take care of billing, but wants to send its video over the Web, just like it always has.

That assumes that the cable guys buy the argument Hastings has been making for some time - that his service isn't for cord-cutters, but for people who like watching lots of video, and don't mind paying another $8 for what is essentially another cable channel.

In so many respects, this is complete utter nonsense. I list several reasons that will clearly show why Netflix is again taking the wrong steps and just burning up cash while time pass by:

  • When Hasting knocks on the door of this cable companies, they will be more than happy to say no or provide terms and conditions which Netflix can't fulfill. Already, Comcast said a big NO to Netflix. Other will possible soon follow like Comcast. There is no reason for Cable companies or content provider to make deals with Netflix. It just is not feasible. In a world like ours, competitors do not usually give up their earnings. Just thinking that others will give a share of their profits to Netflix is just laughable. Netflix provides absolutely nothing extra that competitors can want.
  • There is a chance that Netflix may survive if it becomes like HBO. However, bundling Netflix with cable will basically shot up the cost that customer will probably refuse considering the dire situation of the economy as it is right now. HBO took a very long time to become what it is right now. Netflix needs to burn and crash like all others and become stronger like HBO someday. And that day is not anytime in the near future.
  • The deal with Apple and Netflix has been viewed somewhat bullish for a brief time. However, one must also note that Apple has revamped it model to provide multimedia digital content which Netflix do not control or own. And by giving away 30% of earnings, it is more than likely Netflix possibly will not make much here. And with such uncertainties, the jury remains hanged here. Do you know that you possibly do not need any extra feature to watch Netflix movies on your iPhone? Way before the deal was done, you can simply stream movies through iPhone. So what has this deal provided that was not already there? In my perspective, it seems absolutely nothing that will draw enough extra customers for Netflix to make substantial amount of revenue.
  • Companies like Google, Comcast and Time Warner dictates whether Netflix will live or die. It is just a matter of time Netflix will need to sell it off to some big giant or merge with others. Netflix business model do not seem to be providing what shareholders want.
  • Price wise Netflix is costlier than Comcast. Comcast provides service for $4.99/month or free ($0) for certain customers with certain package with them. So, if you were to get either Netflix or Comcast which will you get? If both provides similar contents and Comcast can provide better user experience going forward, I will chose Comcast. Netflix cannot make much with such high price subscription cost.
  • Netflix faces lower market prices, greater accessibility for consumers to more competition, and higher costs, as Netflix has signed deals for content already and can't increase prices to the end consumer. This is a bad business model and it's tough to see how the company's corporate earnings are going to expand.
  • Google recently announced its own entertainment hub, offering movies, apps and games from one centralized location. This is another company that will start to cut in the revenue stream of Netflix. How can one forget Amazon that is another one that is going full throttle into the digital TV arena?
Therefore, is Netflix a dead ancient fossil trying to survive or is it more than that? Can it live long and prosper or have a slow steady death? No one for sure knows. However, I feel once it understands its customers and shareholders it will start to improve. With the management team there is, the chance seems very minute. As long as Netflix is trying to sell outdated old materials at expensive price and business model is constantly changing, it will quickly become a company that just was there. Wall Street never looks nicely at anyone that has a fickle mind. Netflix needs to care more about its shareholders!

Disclosure: I am short NFLX.

Additional disclosure: I have $NFLX April 95 strike puts and do believe it can go much lower. I do not hold other one mention here but may make trades as seems fit. For instance, I am actively looking to go into long calls of AAPL and GOOG