Netflix, Inc. (NFLX)

Blockbuster's tottering, Amazon's steering clear, and the mighty Wal-Mart has folded. Netflix beats 'em all. Customers love it -- I got hooked by an ex-girlfriend, and proceeded to sign up my parents, who in turn signed up my grandmother -- and the company's speedy service and vast selection can't be beat. Selling used discs is a smart way to leverage Netflix's superior distribution network to make a little extra cash and clear out unneeded inventory. And when it comes time to make the jump from shipping discs to video on demand, Netflix should have the loyal customer base and Web infrastructure to make a tidy profit.

I just got Netflix's new gadget to watch the "watch instantly" selections on your TV. I must say that I'm impressed. Set-up was simple and within minutes I was up and running. The quality of the video was excellent with no pauses during playback. Major step forward in the online video delivery.

Moat: NFLX has a scalable profitable business model with first mover advantage and strong brand and studio relationship.

Management: Collectively NFLX management own 28% of company stock, thus management interest is in line with tha of shareholders.

Competition: NFLX has much lower SG&A than brick and motar competitor Blockbuster, thus it can afford lower gross margin and higher R&D investment on web delivery technology. However, NFLX may face short-term share loss due to Blockbuster's aggressive Total Access Offering and potential acquisition of Movielink.

Threat: NFLX Need to develop own digital download technology to counter long-term threat from VOD and online movie download offerings by other market participants.

Financials: Strong growth. Improving profitability. Strong balance sheet with zero LT-debt. Positive operating cash flow to support future growth and technology investment.

Overall, I see NFLX has great growth potential in the next few years while it will also face above average business due to competition and potential new technology disruption.

NetFlix is a solid company which will recover from its recent tumble by doing what they have been doing the whole time: providing a quality service at a reasonable price. Everyone I know that uses Netflix loves it, and I don't see any of them giving it up. I stopped my subscription, but just because they don't send DVDs to APO addresses. As soon as I return to the States, NFLX will be one of the first companies I reestablish contact with.

The bear argument that VOD and cable/fiber based on demand services are going to kill Netflix is a non-starter.

I'm a professional network engineer, have been for well over 10 years, and the bottom line is that the quality of the video experience delivered via physical media will continue to outperform the capacity of networked video delivery. As network capacity grows so too will the latest video and audio capabilities of physical the media on which films are delivered, keeping it a step ahead of the VOD experience.

Add to all of this the lead that Netflix has with it's online community, recommendations engine, and VOD service and I don't see a short or medium term catalyst to the downside.

The trend is digital. CEO Hastings has positioned Netflix to benefit from the trend to online streaming while also continuing to benefit from the growth of online DVD rentals. Hastings is one of those entrepreneurial visionaries who is worth betting on for the long-term.

Other reasons I like NFLX:

1)Netflix has made a smart partnership with Microsoft to offer their service to XBox 360 owners. I think there are advantages with Hastings being on the BoD of MSFT. It can only be good to buddy up with one of the technological giants of our age .

2) NFLX is the leader and is slowly gaining share from brick-and-mortar stores which NFLX is slowly putting out of business.

3) NFLX has built an iconic logo in the movie business. This is a psychological advantage more than anything else.

4) NFLX has a 5 star service in customer support. The DVD is too scratched to play? No problem. You are shipped a replacement immediately at no additional charge.

The rating system is a great feature. I would say 80% of the time it is right on the money for my taste in movies.

Also, it is very nice that NFLX offers its customers unlimited streaming for absolutely no additional charge. It's hard to beat that.

NFLX is one of those services that once you're subscribed, you are nearly hooked for life.

This is an outperform call for a company and service that I really enjoy more than financial reasons, although NFLX does, indeed, have great looking economics as well.

With what feels like most rental video stores going outta business and stricter crimes on piracy I have no doubt that Netflix will only continue to rise. As far as re-inventing themselves, I have personally always noticed something new every time I get onto the Netflix site.

its only a matter of time before video on demand forces Netflix to re-invent themselves.
Sure they are the king of what they do....but their isnt much value in being the king of poop.

Netflix is the market leader in a market they basically invented. They have created three barriers to entry. First, they have a distribution system that will be expensive to match. Second, they have created a distinct brand identity that defines the market space. Third, their web site technology is difficult to match. Their only significant competition, Blockbuster, ahs been forced to play by their rules. BB is saddled with real-estate and employee costs. Unless BB completely changes to the Netflix model or finds a way to make their stores a LOT more attractive, NFLS will continue to dominate this space.
As for broadband moves and video-on-demand, I doubt they will east Netflix's lunch for technological and legal reasons. Sony, for example, will never allow Time-Warner Cable to download their library thanks to studio competition. Plus, since the studios want to make profit on each viewing of the movie, they will build in tech hurdles to multiple viewings. Netflix has no such hurdles -- you can watch the movie as much as you want, as long as you want, and the studio doesn't know or care.
That said, broadband delivery could eventually be a problem, but not in the 5-year timeframe. And even if it does become feasible, I believe Netflix will pioneer this space too.

Forget about the Blockbuster threat (they're too busy going broke to mount a sustained attack over the long term, and even if they survive, the market is expanding faster than they are).

Forget about VOD (it's out there, but how many people other than you and maybe your geeky cubicle neighbor are going to use it in the next three years?).

Forget, for a few minutes, about the closely watched churn and SAC numbers (they're important, but, like same-store sales at Starbucks, they're not the whole picture).

OK, forgot all that? Great. Now, remember this:

- NFLX pioneered the DVD-by-mail market when everyone else was still waiting in line at Blockbuster

- NFLX has consistently shown its wisdom in the use of technology to make the rental experience better, more efficient, and more relevant to each individual subscriber.

- NFLX has responded quickly and aggressively to every threat to its market dominance, making hard decisions in the short term to assure that it wins in the long term.

- NFLX is making money even as it continues to invest in expanding the market for DVD rentals.

- The DVD rental market is still expanding rapidly, and the DVD-by-mail market has yet to catch up to it.

Like a six-year-old trying on his Bar Mitzvah suit, NFLX still has plenty of room to grow. And if history is any guide, then when the next *viable* opportunity comes along NFLX will be ready to pounce on it as well.

I can?t help it. I just love Netflix. It is the perfect solution to the movie-loving monkey on my back. And judging from the rate at which they are acquiring new subscribers, a lot of folks share my feeling. Movie theaters and brick-and-mortar rental stores have seen their day. The future belongs to Netflix.

NetFlix is a classic "cool idea, terrible long term investment" stock. When digital distribution emerges for rentals on broad scale, Net Flix has no reason for being. Period.

If I'm going to pay 22x earnings for stock, I would prefer a business model that has at least a theoretical chance of long-term survival - and not have Apple, Google, Amazon, Yahoo!, Microsoft, the Cable companies, the telcos, and every other powerful player jammed in the middle of digital distribution breathing down their necks threatening disintermediation.

The only way I see a NetFlix investment paying off, long-term, is if one of the big guys erroneously overpays for their customer base. That makes it more of a speculative play than an investment.

If they can hold 40% growth, this stock is way undervalued. If they slow to just 20% growth, then it is of mid-range value among its most similar peers. What happened on their last call? 48% growth...if that's not a buy sign, then I need to change hobbies.

I understand the rationale for folks looking to recommend this stock given consumer weakness and the implied augmented demand for "stay at home" media / entertainment. However, the intrinsic value of this equity is significantly below current trading levels. This is a valuation call.

1. The stock is trending downward and off its 52-week high

2. The stock is trading at a 25x P / E multiple and does not have the growth and profitability to justify the multiple

3. There are a number of potential competitors for "media dollars" and with time one may reasonably assume an erosion of Netflix share of these media dollars

4. Consumer discretionary is not where I would want to invest given unemployment trends and broad devaluation of home equity

Enjoyable service; not sure at this price an investment will yield oversized returns vs. S&P.

Great Company, excellent service. VOD isn't nearly as close as many people think and when it does get here it will be only a niche service. Physical media (of some type) will dominate for a long time to come (10+ years).

VOD is not an imminent technology. Bandwidth problems and lack of technology penetration are just two of the many issues that will keep VOD from being a primary force in the movie industry for many years still. It will come, and by the time it comes Netflix will be ready. They have a huge stockpile of cash, no debt, and a cash-machine business model. Sounds like the perfect company to be able to deftly incorporate a viable VOD model into the larger business. Remember, being first doesn't mean that you will be the best or be the winner. The first iPod came out approximately 3 years after the first mp3 players. Didn't seem to hurt Apple. And in the meantime, I'll just ride out the upshoot in subscribers as video rental storefronts close and MOVI and BBI continue to hemorrhage money. All of that and you can't beat the excitement of getting that little red envelope every couple of days.

Just added this back to my portfolio. Its a great service and business model. Downloads are next but are still a ways off. HD and Blu-Ray make downloading less desireable (need a lot of bandwidth and disk space) so the mail will still be the way to get em.

Netflix is a very well-run business, a leading and innovating company, and they really have no serious competition (Blockbuster poses a short-term threat, but the company cannot figure out how to become profitable, and they won't shut down their stores, so I don't see them being a serious threat in five years). Add in the excellent financials, and a long-term winner is here. The worries about VOD are overdone, as always. Let's keep watching movies on a TV, shall we? VOD may be something larger in 10 years or so, but if Netflix needs to enter the market, they certainly will. Right now they don't need to, and management is smart enough to know that. Believe me, management will know the right time to enter new markets. Why? Because Netflix understands the DVD market more than any other business out there, and how to be profitable with it.

Netflix is currently beaten down by flawed investor expectations (August 2006) based on the proliferation of VOD. I expect Blockbuster and Movietime/Hollywood Video to continue to lose market share to the Netflix juggernaut, which has the ability to manage its performance targets via careful marketing spending to meet 50% earnings growth expectations for the next several years.