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NFLX Netflix, Inc. +28.7%
Initiated 4/10/11 $233.11 - Target 12/30/11 $300.00
Closed $170.27 9/15/11 2:09 PM
Today $360.28
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Josh Warner-Burke
Baltimore
User since Nov 2007
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Despite a sea of heavy hitting competitors, Netflix could still come out on top

Read this analyst note on SeekingAlpha yesterday:

Google's big overhaul of YouTube is the latest evidence that Netflix is facing a growing, formidable field of competitors. "Unlike other streaming video competitors, YouTube is on nearly every device platform on which NFLX is running today. We believe that it is this platform distribution in particular that gives GOOG a significant leg up," Wedge Partners writes.

It's occurred to me that what makes Netflix so hard for others to catch is their ubiquitous delivery platforms for streaming. But it is getting to be a very, very crowded market. (DISH buying up left-for-dead Blockbuster in large part for its streaming service.)

Later in the thread, another commenter said:

Netflix had great trouble defeating Blockbuster, a loser company by any means, prior to 2008. The next set of challengers will be Amazon, Apple, and Google, all armed with 10s of billions of cash and run by extremely competent management.

To which I replied:

dividend_growth, you make some good points about the competent management of would-be netflix-killers AMZN, AAPL and GOOG - though I don't think Google makes as much sense in that list. It's true that YouTube is more and more of a force to be reckoned with, but is Google aggressive enough to move away from its strictly free model? 

Netflix may still be a buy even though it's already a very expensive company by valuation. Over $12B and there are more attractive companies to me out there, like UA or DECK say, still in the business of selling physical things - which are a better business than selling bits - which for now at least, would seem to be a very low-margin business.

Netflix had a killer model when the first sale doctrine was heavily in play, i.e. with physical discs. And that's still a very profitable business - as a direct result of the 1979 Betamax Case. But with digital it's all up for grabs, and the content producers have a great deal of power. Granted, at this point if we're talking film distribution, Netflix is pretty much it - apart from the theaters, and that's not a very exciting business unless we're talking IMAX. So the studios cannot just say bugger off to Netflix, not in today's market. 

But their margins are going to be heavily under pressure. That's not to say the stock will necessarily decline - I am not going to say short Netflix by a long shot - but if the price continues to rise it will have to be with awareness of that encroaching margin pressure. 

At this point I decided to write a longer article on this site about Netflix.  I could have written about Google just as easily, but I'd still rather own Netflix, as expensive as it is with a market cap above $12B, than Google.  Google's a great company, and not a bad stock to buy, but I just don't see the explosive growth you could still see from Netflix.

For instance, I was asking myself whether I could watch Top Gun on Netflix streaming.  Of course I can get the disc delivered, but can I watch it on a whim?  I knew in my heart the answer was no.   Verified today:

http://www.netflix.com/Movie/Top-Gun/1056189

Available in DVD and Blu-Ray.  But not streaming.  As I point out above, the physical disc model is a much more profitable model, and one that Netflix can offer at a lower price point by far than if they tried to reproduce their whole catalog in streaming.

However, it's also an issue of making deals with the studios - who have thus far been holding out for premium pricing.  At some point, they will relent.  Sure, Netflix will pay billions for these deals, but they won't make them if it will kill their margins entirely.

What we've seen with Coinstar / Redbox talking video streaming, Amazon always in the mix, and now a possibly-reenergized Dish/Blockbuster stepping into the ring, that everyone wants into streaming.  But look at their results so far.  Fact is, it is not easy making deals with the shyster movie execs.  

They want blood money, and so far no one has had enough clout (read:  pure numbers) to muscle them into a workable deal - the way Apple did with iTunes and the record companies and its fixed a la carte model.  But my money is on Netflix to be the first at least to make that happen with the studios.

 
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What People Are Saying...
Mike Barkett said at 4/11/11 1:30 PM
IMO your Top Gun example is the elephant in the room with NFLX. I have overheard in public, dozens of times, "I love Netflix, can't live without it" and then in the next breath something like "but their selection sucks." I'll add to that from personal experience that the streaming quality usually blows. That tells me there is a huge opportunity for a substitute and as your message board adversary points out, the likely candidates are mammoths. (Did anyone mention CMCSA, new owner of HULU?)
I understand why someone would want to own the NFLX stock to ride the wave, but they'd be fooling themselves if they thought they were owning some kind of stalwart with an irreplaceable model.
Regarding GOOG, music videos have already moved to YouTube, and GOOG seems to be making plenty of ad dollars off that. If they can get full length movies, don't you think "free" would be a more attractive model than whatever NFLX charges? I'll also add that instantly accessing videos on both Android and AAPL devices is currently way easier with YouTube than with Netflix. Speaking of AAPL, don't they have a media store of some sort too........
Josh Warner-Burke said at 4/11/11 1:33 PM
Well you make a good point about Android - for some reason there is no Android app for streaming NFLX movies. I have no idea why but my guess is that will be corrected soon enough.

I watched a movie on streaming last night and the quality was good enough for me - not blu-ray but seemed as good as HD TV.

Google is not going to be able to offer movies for free so that's not a realistic counter-argument.
Mike Barkett said at 4/11/11 1:46 PM
Most of the shit in NFLX's catalog was recorded before HDTV was around.

10 years ago who would have thought GOOG would offer books for free? And their free selection is about as good as the streaming movie selection NFLX customers pay for. Pure conjecture on both our parts here, I guess.

Speaking of conjecture, any weight to the claim that there will be a NFLX Android client? I'd like to try that out if so.
Josh Warner-Burke said at 4/11/11 2:03 PM
http://www.androidcentral.com/netflix-coming-select-android-devices-early-n...

In November Greg Peters of Netflix product development said, "we'll launch select Android devices that will instantly stream from Netflix early next year."
Ginger Gal said at 4/12/11 11:35 AM
Both Amazon and Google are powerful competitors now that Netflix has move to the digital online marketplace. IMHO
David Sachdev said at 4/12/11 11:43 AM
I still think that Netflix has some amazing channels that the others do not at this point. Having Netflix available on most DVD players and on entertainment systems such as the Wii, and having a pain free experience with them (ie. you don't have to be a techy to watch it from your couch in your living room on that gigantic TV that you already spent tons of money on) is the real brilliance of Netflix.

Even Apple has had lots of difficulty truly breaking into the living room.

We have to keep an eye on the Android TVs, but for now, I think Netflix wins!

Having said that, the technicals would probably make me short on Netflix in the short term rather then long.

Also...we are approaching earnings season. Tread with caution!
Mike Barkett said at 4/12/11 11:51 AM
@David to get Netflix on my PS3 I needed to install an app via DVD... Youtube came via a wireless online update and didn't require a registration. Just sayin...
David Sachdev said at 4/12/11 11:58 AM
Interesting. Netflix for the Wii was a download from their online "store"
Josh Warner-Burke said at 4/12/11 12:54 PM
Mike, it used to be that way for PS3 streaming but now it's built into the PS3. There's a Netflix icon in Video even if you don't have the service. And no disc is required.
Mike Barkett said at 4/12/11 1:24 PM
Same with Youtube, and BTW, the Wii is yesterday's news. Xbox requires you to have an "xbox live gold" subscription just to use NFLX. The playing field is wide open, gentlemen.
Josh Warner-Burke said at 4/15/11 8:52 AM
I started watching Mad Men on Blu-ray courtesy of Netflix. I don't know if they overpaid with that deal (to stream it) but it is an amazing show.
Josh Warner-Burke said at 4/25/11 11:18 AM
"Hollywood would love to see Netflix show signs of sweating. The entertainment industry, for its part, does fret that Netflix is getting too big, too fast. "

http://www.marketwatch.com/story/netflix-too-big-to-fail-2011-04-25

Mike Barkett said at 4/25/11 11:26 AM
This guy is the official spokesperson for Hollywood?
http://www.cjr.org/behind_the_news/the_man_who_knew_too_little_an.php
Throw us a bone here, a quote from Lindsay Lohan or something...anything. Further evidence that just because something is on Marketwatch doesn't make it true. And "no competitors?" Does he mean no competitors he can think of without taking the time to do a google search? Sorry, not convinced.
Josh Warner-Burke said at 4/25/11 2:22 PM
Technical analysis vs fundamental analysis and the conclusion that there is a time for both. An interesting read:

http://dragonflycap.com/2011/04/25/fa-vs-ta-on-netflix-a-time-and-place-for...
Mike Barkett said at 4/25/11 4:15 PM
A beat, but is it enough? It's like the Superbowl of stock market betting. I have no idea which way it goes in AH but I'll put $0.10 on trading in the 220's by tomorrow. Odds?
Josh Warner-Burke said at 4/25/11 6:39 PM
Just like with Chipotle, this dip is a buying opportunity but that doesn't mean it will pay to buy right now. I still have no real world position in Netflix...
Josh Warner-Burke said at 5/27/11 4:47 PM
With or without Facebook, Netflix needs to get social http://seekingalpha.com/article/272192-with-or-without-facebook-netflix-nee...
Josh Warner-Burke said at 6/23/11 1:07 PM
Facebook names Netflix CEO Reed Hastings to its board. Interesting indeed. NFLX shares spike as a result.
Josh Warner-Burke said at 7/11/11 10:34 AM
Target hit today, I will hold on as I've underestimated Netflix in the past.
David Sachdev said at 7/25/11 4:57 PM
I will be watching this one closely tomorrow, I think there will be a good buying opportunity coming up in the near term.
Josh Warner-Burke said at 9/15/11 2:09 PM
Closed a real life position as the sentiment has turned ugly. Although its best years may be ahead of it, if the prevailing sentiment is the opposite, you have to listen to that.
David Sachdev said at 9/15/11 2:18 PM
The chart says that this is good for short term, but that we may test 140.
NFLX $360.28 -7.86 (-2.1%)
 
 
NFLX: Netflix, Inc.: Buy, Short Or Stay Away
Opened 323.62 10/14/13
Target 270.00 by 10/21/13
Today 360.28
Inthe Money from NYC

NFLX: A Bet on Streaming
Opened 102.93 1/19/12
Target 112.00 by 2/24/12
Today 360.28
David Sachdev from Washington, DC

NFLX: March 100 Call contracts are hot right now!
Opened 76.64 1/4/12
Target 88.00 by 3/30/12
Today 360.28
David Sachdev from Washington, DC

NFLX: Stabilized at 90
Opened 89.06 11/9/11
Target 128.00 by 3/30/12
Today 360.28
Henry Chinaski from South L.A.

 
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