Netflix Inc (NASDAQ:NFLX)

CAPS Rating: 2 out of 5

Netflix delivers its comprehensive library of movies and TV shows online and through the mail in their ubiquitous red envelopes.

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Player Avatar TMFDeej (99.26) Submitted: 4/23/2010 12:01:41 PM : Underperform Start Price: $86.86 NFLX Score: -18.60

Rats, I was a day too early. Oh well, there's so much uncertainty surrounding this company's business model and whether it will be able to maintain its dominant position when the eventual permanent switch to digital delivery of movies happens. Plus the USPS is probably pulling the plug on Saturday delivery, making the Netflix delivery service slightly less convenient.

I don't think that Netflix is going away, just that it is tremendously overvalued at over 40 times earnings.

Deej

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Member Avatar DJoshuaRubin (98.37) Submitted: 4/23/2010 12:55:24 PM
Recs: 2

I've been enjoying watching posts like this for four years. The company has hundreds of millions in cash and much truckloads flowing in monthly. It is expertly run and laser focused. The audience is going international with digital. Churn is low. Their web marketing is relentless. They have a massive library of content that is expanding without angering the studios. The CEO who has been entirely reliable thinks that DVDs will still be here in 2030. They have just moved their operations onto the Amazon cloud which they claim has made it much easier to rapidly develop software. This got them onto the Apple iPad from day one. They are buying back shares to return money to shareholders. They are on the Wii, Xbox, Playstation, Tivo and other devices. Their rec engine works. Their reliability is stellar.

"Tremendously overvalued at 40X earnings." Comments like that are lifted from textbooks without any hard analysis of real future potential, including additional revenue streams that may develop (ads, links to Amazon?), being bought out (highly possible) and amazingly doesn't recognize that their moat is a giant crocodile-infested raging river with wild dogs at the shore on the other side.

There is ZERO uncertainty regarding their business model. 14 million people use the service, the massive majority of them rare extremely happy and hundreds of millions of dollars flow into the company monthly. I pray every night to all Gods, going back to Zeus, that I can ever dream up a business model this "uncertain."

Member Avatar TMFDeej (99.26) Submitted: 4/24/2010 1:09:57 PM
Recs: 0

To each their own, Dan. I'm not short Netflix in real life, just in the CAPS game (scoreboard :)). If one really steps back and thinks about it, in today's digital age, freaking physically mailing DVDs out to people seems so old-fashioned and idiotic it's almost funny. DVDs are hurting and so is the US Postal Service. I have tons of DVDs, but I haven't bought one literally in years. I canceled my Netflix subscription a while ago, partly because I didn't have enough time to watch full movies with lots of work and two young kids, but partly because it's so much easier to just push a button and watch a movie whenever I want to right on my television or computer.

The real question that one has to ask themselves when buying this stock is what competitive advantage does Netflix have in the download arena? That's where everything is headed sooner or later. Ask Blockbuster what happens when a business changes and the company does not adapt properly. Perhaps Netflix will adapt well and it will eventually become the king of pay-per-view, it seems like a fairly well-run company, but I wouldn't pay 40 times earnings to find out if that is going to happen (textbook HA, try common sense from a value investor at heart).

Deej

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