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Dr. Stocks-PHD Twenty year Wall Street veteran. Hollywoods direct line to Wall Street. Specialize in market timing and predictive modeling. Follow my updates via twitter/tkathlinastocks and at my blog http://traderstocksets.blogspot.com/
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  • NFLX FAIR VALUE $62 PER SHARE JAN 27TH 5 comments
    Jan 27, 2011 12:39 PM | about stocks: NFLX
    NFLX is all the talk again this morning as they were able to cook the books yet again to get Wall Street all excited and giddy.

    Of course no doubt the interviews on the night time stock advice shows are probably lined up and I have no doubt the Cramers of the world will scream BUY, BUY, BUY.

    The only thing I wonder is if these TV personalities that are faking as investors, have to go to confessional in order to look themselves in the mirror the next day.


    The first chart above looks at 60 years of stock market trading based on leverage-or risk of your investment. Its determined by assets/liabilities; data collected by the Federal Reserve.
    As you can see, from 1950 all the way to 1992, the market managed to trade at no more leverage then .50cents to the dollar in tangible assets.

    Thanks to Greenspan and his buddy Helicopter Ben, the devaluation of the dollar due to endless printing along with rising corporate liabilities has us now at an all time high of 1.11.

    This brings me to NFLX:

    According to numbers just released by NFLX today they have as follows (in millions):
    Cash $194
    Content $181
    Property $123
    For total assets of $503
    -----------------------------
    Liabilities were $691

    For a ratio of 1.37 or 70% above current market multiple of 1.11-(which is 80% above historical avg)

    Subtract 70% from $204, the price of today for NFLX, you get $62 per share fair value.

    If we look at the weekly chart, that's right about where the 200 day moving average is. Funny how that works out isn't it!

    See ya

    Stocks: NFLX
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Comments (5)
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  • joey554
    , contributor
    Comments (605) | Send Message
     
    Excellent analysis I completely agree.
    28 Jan 2011, 02:13 PM Reply Like
  • tkathlinastocks
    , contributor
    Comments (29) | Send Message
     
    Author’s reply » Thank you. Finding these type of over valuations are a great way to pump up portfolio returns over long periods of time. Now all we have to do is wait for the stock to break down, then take down a small short position, adding to it as it goes further in the money. This is the type of play that once it rolls over, will pay big returns for years as it slowly moves towards single digits.
    29 Jan 2011, 06:16 PM Reply Like
  • tkathlinastocks
    , contributor
    Comments (29) | Send Message
     
    Author’s reply » New twist, check this out:
    arstechnica.com/tech-p...

     

    Going to have to pony up big time for bandwith usage. Hope this doesnt come to US.
    31 Jan 2011, 10:52 PM Reply Like
  • tkathlinastocks
    , contributor
    Comments (29) | Send Message
     
    Author’s reply » www.guardian.co.uk/tec...

     

    Internet running out of address, could cause log jam and metering charges.
    3 Feb 2011, 08:31 AM Reply Like
  • joey554
    , contributor
    Comments (605) | Send Message
     
    NFLX is treading water and trying to buy time to get a secondary offer together. It is their last hope...and a weak one at that---as evidenced by the MASSIVE insider sales at the executive level.

     

    NFLX has OLD content and can't afford NEW content...can afford much of anything. The FACT is Netflix is NOT a leader in streaming---regardless of how many times that assertion is put forth. Some behemoth like GOOG or AAPL is going to take NFLX down by under-cutting them for monthly streaming with better content. Count on it. And NFLX will deserve it. And don't think NFLX is an acquisition target either. Why spend $220 per share...or even $50 per share when you can buy Blockbuster for so much less?
    It's JUST a red button, folks. There's nothing permanent about it.
    Last week-once again-we saw another round in the game of “how vague can we be?” played by NFLX execs at Q4 earnings.
    Why no Guidance offered? It should be obvious to anyone with a brain.
    Because breaking through 25 million subs at their current rate of churn is going to be very hard, and that admission would KILL the stock.
    “Notably, Netflix is NOT providing full-year revenue or subscriber growth guidance, other than that it expects “domestic subscriber net additions to continue to grow in 2011.”
    Well, fancy that! They can "expect" anything. They can "expect" purple elephants to stream next years films through their trunks. Good grief! Pay attention to the very CALCULATED language and theater of these reports. Netflix says it’s doing this because its business is “so dynamic.” Note that they never differentiate the FREE subscriber additions! What a load of crap. The insiders KNOW the PPS will most likely move dynamically DOWN once the smoke clears and the mirrors are cleaned.
    By the way, the Q4 numbers were NOT so great, they were falsely inflated and everyone took the companies word at face value. I want to know why there are no geniuses demanding to know how many of those subs were FREE…and why NFLX has next to no free cash flow? Seems everyone just drinks the koolaid without question!
    Does no one get suspicious to learn that there have been massive buybacks only for NFLX execs to SELL almost all of their interest? Or why, if NFLX is such a great company, they REFUSE to have an open investor call...?
    BEWARE: ANY TIME a company TELLS you that they will NOT report in the future what was a PRIMARY METRIC in the past, it is cause for SERIOUS concerns. If it remained good you would have no problem reporting it. Obviously, gross subscriber increases (or decreases) must not look that great, or why refuse to report going forward?
    ***Take note***Refusing to release cost of new subscribers is what the dot-com companies did before the bubble burst. What does that say?

     

    It says accounting gimmicks.

     

    Since 2009 EPS at NFLX has been the function of an ACCOUNTING GIMMICK. …..AMORTIZATION is the entire scam.....delaying expenses on the income statement---and the reason why CF & NI don’t match...they are spending 2X the money on streaming content costs vs DVD historically, then amortizing (over the contract term) them instead of expensing, because they don’t really have 10M streaming customers............!!! Thus NI growing 2-3X vs. CF in 2009 & 2010.
    Look at the table below……

     

    2005 2006 2007 2008 2009 2010
    CF 46.0 78.7 68.8 121.1 132.0 152.5
    71% -13% 76% 9% 16%
    NI 42.0 48.8 66.6 83.0 115.9 160.9
    16% 36% 25% 40% 39%
    CF 37.8 75.5 52.2 114.0 134.3 12.5
    ex A/P

     

    *Above source Reuters Knowledge
    ----------------------...
    You don't need an accounting degree to see the charade.

     

    Revenue increases: $553 to $595 = $42 million

     

    Subscription costs: $292 to $336 = $44 million

     

    Fulfillment goes from $52 to $52 = $2 million

     

    Thus $42 million in additional revenue actually costs NFLX $46 million….so the move to streaming is LESS profitable.
    How do you make money losing $11MM for every $10.5MM you sell??
    SOMEONE answer this.

     

    If they pay A/P on time, their cash drops by $70MM this quarter.

     

    What about incremental costs on their streaming content to the studios that are eating up subscription revenue?

     

    We know content costs are going to rise, and may be even more aggressive based on streaming usage….never mind if there are tiered charges for bandwidth usage
    3 Feb 2011, 10:50 AM Reply Like
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