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There's Something Happening Here, What It Is Ain't Exactly Clear...



February 11, 2011 – Comments (12) | RELATED TICKERS: NFLX

There's another man with a strong buy over there,
Telling me I got to beware,
I think it's time we stop, look, what's that sound,
Everybody look what's NFLX got going down...

That soon-to-be ex-DVD mailer is known as Netflix (NFLX).  Not only is the share price of Netflix a ridiculous number I don't even want to quote (whispers $230+ as of 02-11-11), but the business has some red flags if you ask me.  Here is the 'tale' of the tape:

EPS = 2.96

PE = 77.97

Market Cap = $12,800,000,000

Float = 51,000,000 shares

Cash = 350 mil, Debt = 236 mil

December 31, 2009 Accounts Payable = 124 mil

September 20, 2010 Accounts Payable = 207 mil

Subscribers as stated by Netflix: 20,000,000

Growth as stated by Netflix 2009-10: 30%

Ok, you see these numbers so want to know what's up.  You probably heard about Leonard Brecken also question this as well as others.  But let't get deeper.  Netflix according to SeekingAlpha, is the 5th most shorted stock on the S&P500 at a whopping 23% of float and growing daily.  This is on top of the fact they they somehow created revenue even though their account payable went up almost 100% while the bottom line went up only 30%.  But let's get into some more questions.

How does a company with 20,000,000 subscribers to a service that cost $7.99/month get a market cap of over $12 billion with a B?  If you can't answer, neither can I.  We aren't talking about some complex business model either.  They get licenses for the movies and products, they acquire the networking requirements to send these things through your gaming system or computer, and that is that.  Without DVD mailing anymore, it will all be digital bits and bytes going from one place to another.  

At $7.99/month x 12 months = $95.88 per customer of revenue before all the costs

At 20,000,000 subcribers that is: $1,917,600,000.  

That is just the revenue.  That isn't the net income!  

Net income to shareholders for 2009 was: $115,860,000.

So one often wonders why NFLX is trading at $230+/share recently when it traded far less for so much longer...


12 Comments – Post Your Own

#1) On February 11, 2011 at 6:18 PM, ikkyu2 (98.21) wrote:

It's because of their wide moat.  Internet media streaming is a complicated and difficult business and no one else will ever be able to accomplish it the way that NFLX can because of their durable competitive advantage.


..wait, what?

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#2) On February 11, 2011 at 6:38 PM, mikecart1 (75.95) wrote:

Explain what you mean ikkyu2.  I'm not being sarcastic and I'm not the only one suspicious of their recent filings.

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#3) On February 11, 2011 at 10:46 PM, nuf2bdangrus (< 20) wrote:

Nothing but momentum.  New shorts come in, the stock "beats"  (it is loved by the street so all shenanagins are forgiven) and the shorts make fodder for rising prices.  I purchsed a put spread before earnings, and got smoked.  I'm still trying to work the position to break even, and it will take weeks.

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#4) On February 11, 2011 at 11:58 PM, mikecart1 (75.95) wrote:

Hi nuf2bdangrus, everyone keeps saying stocks like NFLX, AMZN, PCLN, etc. are going to drop but I never see them drop.  NFLX is increasing in price at an alarming rate. 

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#5) On February 12, 2011 at 12:39 AM, GreenCollegeGrad (73.16) wrote:

what goes up...

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#6) On February 12, 2011 at 11:42 AM, mikecart1 (75.95) wrote:

Must stay up? :p

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#7) On February 12, 2011 at 6:05 PM, russiangambit (28.67) wrote:

Wht is happening here? Bubble from too much liquidity.

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#8) On February 14, 2011 at 3:08 AM, ikkyu2 (98.21) wrote:

I'm with you on this one, mikecart - I was being sarcastic.  I see no reason or justification for NFLX's valuation.  I've felt the same way about AMZN for much longer.  The result?  I've missed out on a lot of profits.  But I don't feel bad about it - no one says you have to catch every bus.

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#9) On February 14, 2011 at 9:50 AM, mikecart1 (75.95) wrote:

This is getting nuts guys.  NFLX is up over $8 since this article.  This article was last trading day!

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#10) On February 14, 2011 at 10:20 AM, ease1 (97.19) wrote:

If your in it and worried of a drop, why not just do a trailing stop?

Rumors of 21.3 subs at this point in the quarter.

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#11) On February 16, 2011 at 4:11 PM, willmaster01 (94.09) wrote:

Canadian expansion... lots of growth there. What else are we going to do up here.. :P

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#12) On February 16, 2011 at 9:09 PM, ozzfan1317 (73.31) wrote:

I bought at 100 sold at 150 and bought back in at 200 I only put 1200 in just going to let it ride if there is a big correction it will be a buying opportunity. Great company glad I own a piece of it.

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