Netflix, Inc. (NASDAQ:NFLX)

BillKaufman (90.28) Submitted: 11/10/2011 12:46:08 PM : Start Price: $86.90 NFLX Score: +25.74

What their moat? They are at the mercy of movie studios (i.e. they don't own the content they rely on for making money!) and consumers and the Post Office.

The movie studios are in the driver's seat and want to maximize their profits so they're going to make Netflix pay for the content.

The Post Office is broke and operating at a loss. The only way to get out losing money is to raise prices (it will hurt NFLX's DVD business) or they will go out of business (it will hurt NFLX's DVD business). I.E. NFLX can't win on this one.

Finally, NFLX relies on consumers the most. They need them to agree to the unpopular price increases which is not very good timing since the economy is in the tanks and if one needs to cut costs from their budgets, this is an easy choice. Also, it doesn't help that NFLX doesn't own or even control the toll roads of the internet. The consumer pays for their own internet access and as companies look to control the amount of data flowing through their lines, they will raise prices. Or they might opt to limit the amount of data one can receive. Either way, NFLX is not in control.

In conclusion, how can a company still be valued at a high valuation when they have no control over their input costs (movies) and expect consumers to keep paying higher prices just for the right to stream movies. There's no moat and thus expect your stock returns to trail the overall market.