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I Know A Lot Of You Like Netflix

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September 08, 2012 – Comments (6) | RELATED TICKERS: AMZN , NFLX

Now I will preface this by saying that I am not a Netflix hater by any stretch. I am simply one Fool that falls on the bearish side where Netflix as an investment is concerned. Put succinctly, I think that Netflix at this point is a better service than it is an investment. And I think it is a fine service for what Reed Hastings has set out to do.

Netflix's competitive advantage was never stronger when it was strictly DVD by mail. They owned that space and to be sure that's the primary reason Hastings started the company; to eliminate the dreaded late fees. However streaming is a totally new ballgame and one that brings in many new players. Netflix's competitive advantage in this space was its first-mover status when streaming was still a novel concept. It is no longer a novel concept and this first-mover advantage has diminished substantially.

I encourage you to check this link here. It's a nice video clip reviewing the new Amazon Kindle Fire HD:

http://www.theverge.com/2012/9/6/3295919/amazons-8-9-inch-kindle-fire-hd-hands-on-pictures

I also encourage you to check this link here. It's a review of Amazon's presentation as Bezos introduced the new lineup a couple of days ago:

http://www.theverge.com/2012/9/7/3298382/amazon-kindle-fire-hd-apple-ipad-tablet-strategy

As a consumer who used to subscribe to Netflix and is also an Amazon Prime member, it's quite obvious to me the ramifications of this new line of tablets. Given the state of Amazon's streaming library to date, the fact that it continues to only grow and get better, extending to more and more platforms, competition in the streaming space is getting ready to hit a whole new level. Bezos is building the Kindle Fire family to stay; it's not a gadget, but a service (his words). In short, he wants the content you are watching to come from Amazon. It doesn't take a genius to see that.

Don't get me wrong, I'm not saying that Netflix won't succeed; it very well may and I think will...to a degree. While I don't own and have never owned Netflix stock (I do own shares of Amazon), I would never bet against Reed Hastings. Blunders aside he's quite obviously a very bright guy. I am saying however that the competitive landscape in this space has changed very significantly in a relatively short amount of time. One of the biggest competitve advantages in this space today is deep pockets and some are deeper than others. Just something to think about.

Foolish best,

Jason

6 Comments – Post Your Own

#1) On September 09, 2012 at 12:23 AM, awallejr (77.67) wrote:

I dunno according to The Fool, Amazon is expected to make $2.31 per share next year and is selling for $259 a share.  Apple, on the other hand, is expected to make almost $53 per share next year and is selling for $680 a share.  Now Netflix is expected to make 94 cents a share next year and is selling for $56.

The choice just doesn't seem to be hard to make.

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#2) On September 09, 2012 at 12:54 AM, Minow (< 20) wrote:

When NFLX's negative annual earnings are shed and the stock price settles in around $45.00-$55.00 and the bidding war kicks in I'll be saying...who's your daddy-now!

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#3) On September 09, 2012 at 12:58 AM, awallejr (77.67) wrote:

Apple?

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#4) On September 09, 2012 at 11:19 AM, dwot (45.74) wrote:

Didn't NFLX get huge bargins in their initial contracts for their streaming data?  I've been wondering what happens when contracts are up for renewal and with the costs of newer contracts.

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#5) On September 09, 2012 at 12:42 PM, TMFJMo (70.51) wrote:

Netflix definitely has some bills coming due as competition for content ramps up. In my estimation one (or possibly some combination) of three things is going to happen sooner or later. Either management will issue more shares at some point to raise additional capital; Netflix as a service will have to raise prices in order to keep up; or we could even see some level of advertising creep into Netflix's model in order to expand offerings.

Now I'll be the first to say that I would be really surprised to see advertising creep in as one of the major claims to value Netflix currently has is that you don't have to deal with commercials. But it's possible. The other two ideas seem more plausible to me.

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#6) On September 17, 2012 at 11:20 AM, TMFJMo (70.51) wrote:

Seems like this guy has an interesting perspective:

http://www.marketwatch.com/story/netflix-falls-content-costs-seen-spiralling-2012-09-17?siteid=yhoof2

"In keeping with our positive thesis on media names like Time Warner and CBS, we believe content owners rule the roost," he wrote, adding the view that "Netflix is a price taker in an increasingly competitive market."

Not far off I'd say. It's the whole point of property rights in general isn't it? Power to the ones who own it?

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