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$24.81 -1.68 (-6.34%)
10/7/2008 11:46 AM

Netflix, Inc. (NFLX)

CAPS Rating:
***

The Company is a online movie rental subscriber which provides more than 6,300,000 subscribers access to a comprehensive library of more than 70,000 movie, television and other filmed entertainment titles on DVD.

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Avatar SureBeatsWorking (79.83) Submitted: 1/11/07 9:14 PM : Outperform Start Price: $23.85 NFLX Score: 30.86

They expect 20 million subscribers by 2010, they have around 5.8 million reported.

Great concept. Potential to move into other areas such as video on demand. Maybe move into content ownership more.


I've watched this company go up and down like a yoyo over the last 3.5 years but always bounce back from lows once the fear retreats. Fears due to competition with Blockbuster, concerns about video on demand, high churn rates and a whole host of other things. Amazon didn't enter the market and even the mighty Walmart got scared off! It sounds like NFLX will move into downloads, but even without this 63.76% of internet users, which is only 12.8 people per 100 inhabitants have broadband and to down load a HD movie would take more than a couple of hours. Many people will still use mail to get their DVDs.


One potential problem is the battle with Blockbuster that could eat up profits and it is something to watch, But Netflix has zero debt makes money and has 368m in cash 20% per share whereas BlockBuster (BBI) has $994 million in debt and about $250 million in cash. Last year Blockbuster made about $76 million in cash flow. The much smaller, less capital intensive Netflix made over $80 million in cash flow, and Netflix doesn’t have to worry about maintainance of all it’s bricks and mortar stores and keeping it’s franchisee happy! Netflix looks much more financially sturdy and able to fight a battle.


1.6B market cap – I prefer smaller companies with room to grow.

It’s a first mover and like google, netfix has become a verb.

It seems like one of David Gardeners favorite picks, I have it in my portfolio at about this cost basis so I though now would be a good time to add to CAPS.

This is a long term investment 5 years +

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Avatar Gumfactor (59.10) Submitted: 2/23/07 12:44 AM

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Interesting analysis.

Certainly I agree that between Netflix and Blockbuster, Netflix appears the more financially-secure. Still, I think the battle will remain a long and violent one, and I'm not sure that I feel confident to do anything but watch from the sidelines.

More than that: I think Netflix was old technology before it even became an entity. Movies-by-Mail may be a viable business model at the moment, but I just don't see it as a growing business model. Sure, Netflix may be gaining customers at the moment, but once VOD technology becomes cheaper, I just don't see it lasting. Perhaps you're right - perhaps Netflix will become one of those VOD companies. Until they show viability in that way, however, I can't see it as anything but a particularly successful fly-by-night.

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Avatar SureBeatsWorking (79.83) Submitted: 2/24/07 6:16 AM

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Matt
I think the battle with Blockbuster is definitely a risk and it seems its starting to hot up. What with Blockbusters latest offer over President's Day weekend to allow Netflix subscribers to return Netflix movies there and get a Blockbuster DVD in return for free! As I mentioned though due to all the debt Blockbuster already has and the noose of the physical location I expect Netflix to emerge victorious. What would you do if you were a Blockbuster franchisee and your parent company started recommending you got your movie on line and not from the store anymore!

Waiting to see who the likely victor is sounds like a sensible strategy, but in my limited experience in the stock market if Netflix is going to win, and I think it is, once the market realizes this I won’t be able to get a price anything close to what I got recently.

Regarding VOD one other way to look at things would be to see how keen some online heavy weights were to get into movies via mail business. Walmart wanted in as did Amazon who decided rather than compete with the likes of Netflix and Blockbuster would set up shop across the pond in the UK.

Thanks for your comments.

Jon

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