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Geronimo has 15 years experience with institutional investing in private and public markets.
  • Netflix - The Emperor Has No Clothes 0 comments
    Sep 7, 2011 1:00 PM | about stocks: NFLX, OUTR
    Lost in all the NFLX discussion about the Starz deal is what it means for the economics going forward. 

    Here is some calculator math that will make you want to sell Netflix. Netflix offered Starz $300m/ year for content that they say 
    accounted for 8% of total domestic viewing hours. If we divide the $300 million by the 8% of viewable hours, we see that the total content costs, pro forma for the price that Netflix was willing to offer Starz is nearly $4bn annually...

    While segment economics are not yet available for the business, it doesn't take a CFA to realize that $4bn in annual content costs is too much for a business that is only generating $3bn in annualized revenues especially when you consider that the revenue stream includes revenues from physical delivery subscibers (a business line with its own cost profile). 

    As we have been saying, the segment financials here are going to reveal that Reed Hastings has no clothes. Luckily, he has been selling stock. 

    Disclosure: I am short NFLX.
    Stocks: NFLX, OUTR
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