3SOF

NFLX must be spending lots of ad $'s. I've seen several TV commercials lately and I've got no fewer than 3 free trial offers in the mail last couple of months. Hmm.

I was trying out GUBA so I can start watching movies through online, I picked up a particular movie but unfortunately there was an error (see the error below). I hope that Netflix does not do the same thing when they released their "Video Online", lucky though I lived here in the U.S.

David, how do you resize this thing?

Quote from: HANDBALLJIM on January 19, 2007, 12:19:40 AM
Terliso
Is this website legit? What is their payment method? Not sure if I would want to give out my cc# to a website in Russia.

HANDBALLJIM, One more thing.. If you are afraid giving out your credit card numbers to the Russians just let me know I got tons (103Gb) of Music in my hard drive... he he he.... 

Apple needs to start making iPod that has capacity of 200GB version for me!

Well, you can't resize that because content doesn't shrink. Unless the part that you want to show is small then you can capture the part you want to show with paint shop pro, save as .gif and upload here.

Like this:



NFLX is still being offered just in the US, but they could easily spread their business to Europe and Asia, even just with the mail offering.

There's this article from Motley Fool that talks about NFLX:

Which Could You Not Live Without?

I think the answer is NetFlix, what do you think?

We also have this interview with NFLX's CEO:

• CEO Interview: Netflix

From what I hear on the interview it will take Blockbuster one year more to release its "watch now" IP video rental service. In 2007 Netflix can literally "eat" BBI with its instant online offering.

But I'm absolutely not worried with the competition between NFLX and BBI (although the market seems obsessed with it). I prefer to focus on the size of the potential market. And it can be the world. NFLX can grow from its 6 million subscribers to 100 million or more in some years, as it spreads across the world.

Even with this $40 million dollar investment in the "watch now" service, NFLX expects to report full year 2006 EPS of $0.80, so the trailing earnings multiple is 28. It looks high. But, if they didn't invest these $40 M and that were to go directly to the bottom line, EPS would then be $1.4 and PER would be 16.

Average annual EPS growth for the past 4 years was 68%, going up from 10 cents in 2003 to about 80 cents in 2006.

I'll keep holding NFLX.

That short position, for the wrong reasons, would have been right, at least over the short term.

As I see it, if the company didn't invest $40 M in changing it's long term outlook and prospects, EPS would have been $1.4 and PER would then be 15.6. This for 2006.

Considering the company's growth rate and global market prospects I don't see how it can go down over the long term. But I sure can see it breaking down 5 or 10% more. If I wanted to make a short term trade, I wouldn't buy this stock.

And if I wanted to do a long term trade I certainly wouldn't buy the stocks I've been buying on the 3 Stocks on Fire Portfolio.

I'll keep holding NFLX as an investment. I won't sell it if I'm losing 20% and I won't sell it if I have a 20% profit on it.

I wrote the following yesterday:

QuoteI'll keep holding NFLX as an investment. I won't sell it if I'm losing 20% and I won't sell it if I have a 20% profit on it.

4th quarter earnings will be out today after the close. Expectations are:

«Analysts polled by Thomson Financial expect Netflix to post fourth-quarter earnings of 15 cents per share on $277.2 million in revenue. For the full year, the company forecast a profit of $41.7 million to $47.7 million, on revenue of $992.4 million to $997.4 million. Analysts are looking for earnings of 64 cents per share on $996.7 million in sales.»

I fear the results as anybody else, but as I see it, if NFLX didn't invest those $40 M in the "watch now" service, it would earn $1.4 per share in 2007 (instead of the $0.8 expected), and then the forward earnings multiple would be 15.5.

If they make those $0.64 EPS expected for the full year, the trailing earnings multiple will then be 34 and I'm afraid the stock may tank tomorrow.

This is a though decision. On the other hand, analysts are expecting 15 cents EPS for the 4th quarter. It was 18 cents on the 3rd and 25 cents on the 2nd, so perhaps they're being somewhat pessimistic here?

We'll see, but I'll stay the course, stick to my guns, as realcoolhead and President Bush say, and I'll hold NFLX through earnings (since the stock has been down so much over the short term, maybe bad news are priced in and good news aren't).

Earnings out.  Another nice call, David!

Netflix Announces Q4 2006 Financial Results
Wednesday January 24, 4:05 pm ET 

Subscribers - 6.3 million, up 51 percent year-over-year Revenue - $277.2 million, up 44 percent year-over-year GAAP Net Income - $14.9 million, down 61 percent year-over-year Income Before Income Taxes - $23.8 million, up 439 percent year-over-year


LOS GATOS, Calif., Jan. 24 /PRNewswire-FirstCall/ -- Netflix, Inc. (Nasdaq: NFLX - News) today reported results for the fourth quarter and year ended December 31, 2006.
ADVERTISEMENT


"2006 was a solid year for Netflix, demonstrating again the strength of our business model," said Reed Hastings, Netflix co-founder and chief executive officer. "Our accomplishments during the year -- strong subscriber growth, continued improvement in the customer experience, and increased profitability -- together with the recent launch of the first generation of our online video option, leave us better positioned than ever to achieve our long-term objective of being the movie rental leader."

Fourth-Quarter and Fiscal-Year 2006 Financial Highlights

Revenue(1) for the fourth quarter of 2006 was $277.2 million, representing 44 percent year-over-year growth from $193.0 million for the fourth quarter of 2005, and 8 percent sequential growth from $256.0 million for the third quarter of 2006. Revenue for fiscal 2006 was $996.7 million, up 46 percent from $682.2 million for fiscal 2005.

GAAP net income for the fourth quarter of 2006 was $14.9 million, or $0.21 per diluted share, compared to GAAP net income of $38.2 million, or $0.57 per diluted share, for the fourth quarter of 2005 and GAAP net income of $12.8 million, or $0.18 per diluted share, for the third quarter of 2006. GAAP net income for the fourth quarter of 2005 included a benefit of the realized deferred tax assets of $34.9 million, or approximately $0.52 per diluted share, related to the recognition of the Company's deferred tax assets.

GAAP net income for fiscal 2006 was $49.1 million, or $0.71 per diluted share, compared to GAAP net income of $42.0 million, or $0.64 per diluted share, for fiscal 2005.

Non-GAAP net income was $16.8 million, or $0.24 per diluted share, for the fourth quarter of 2006, compared to non-GAAP net income of $41.5 million, or $0.62 per diluted share, for the fourth quarter of 2005 and non-GAAP net income of $14.6 million, or $0.21 per diluted share, for the third quarter of 2006. Non-GAAP net income for the fourth quarter of 2005 included a benefit of the realized deferred tax assets of $34.9 million, or approximately $0.52 per diluted share, related to the recognition of the Company's deferred tax assets.

Non-GAAP net income was $56.8 million, or $0.82 per diluted share, for fiscal 2006 compared to non-GAAP net income of $56.4 million, or $0.86 per diluted share for fiscal 2005.

Non-GAAP net income equals net income on a GAAP basis before stock-based compensation expense, net of taxes.

Gross margin(2) for the fourth quarter of 2006 was 38.9 percent, compared to 37.2 percent for the fourth quarter of 2005 and 38.0 percent for the third quarter of 2006. Gross margin for fiscal 2006 was 37.1 percent, compared to 31.7 percent for fiscal 2005.

Stock-based compensation. In accordance with SEC Staff Accounting Bulletin No. 107, stock-based compensation is no longer presented as a separate line item on our income statement. Stock-based compensation is now presented in the same lines as cash compensation paid to the same individuals. Stock-based compensation recognized in prior periods has been reclassified to conform with the presentation in the current period. In the fourth quarter, the charge related to stock-based compensation was $3.1 million, compared to $3.3 million in the fourth quarter of 2005 and compared to $3.2 million in the third quarter of 2006.

The charge related to stock-based compensation for fiscal 2006 was $12.7 million, compared to $14.3 million for fiscal 2005.

Free cash flow(3) for the fourth quarter of 2006 was $22.5 million, compared to $24.3 million in the fourth quarter of 2005 and $22.3 million for the third quarter of 2006. Free cash flow for fiscal 2006 was $62.0 million as compared to $24.3 million in fiscal 2005.

Cash provided by operating activities for the fourth quarter of 2006 was $87.1 million, compared to $59.1 million for the fourth quarter of 2005 and $61.5 million for the third quarter of 2006. Cash provided by operating activities for fiscal 2006 was $247.9 million, compared to $157.5 million for fiscal 2005.

Subscriber acquisition cost(4) for the fourth quarter of 2006 was $44.31 per gross subscriber addition, compared to $41.17 for the same period of 2005 and $45.32 for the third quarter of 2006. SAC for fiscal 2006 was $42.96 per gross subscriber addition compared to $38.77 for fiscal 2005.

Churn(5) for the fourth quarter of 2006 was 3.9 percent, compared to 4.0 percent for the fourth quarter of 2005 and 4.2 percent for the third quarter of 2006. Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.

Subscribers. Netflix ended the fourth quarter of 2006 with approximately 6,316,000 total subscribers, representing 51 percent year-over-year growth from 4,179,000 total subscribers at the end of the fourth quarter of 2005 and 12 percent sequential growth from 5,662,000 subscribers at the end of the third quarter of 2006.

Net subscriber additions in the quarter were 654,000, compared to 587,000 for the same period of 2005 and 493,000 for the third quarter of 2006.

During the quarter Netflix acquired 1,493,000 gross subscriber additions, representing 29 percent year-over-year growth from 1,156,000 gross subscriber additions in the fourth quarter of 2005 and 14 percent quarter-over-quarter growth from 1,310,000 gross subscriber additions in the third quarter of 2006.

Of the 6,316,000 total subscribers at quarter end, 97 percent, or 6,154,000, were paid subscribers. The other 3 percent, or 162,000, were free subscribers. Paid subscribers represented 96 percent of total subscribers at the end of the fourth quarter of 2005 and 97 percent of total subscribers at the end of the third quarter of 2006.

Business Outlook

The Company's performance expectations for the first quarter of 2007 and full-year 2007 are as follows:


    First-Quarter 2007
    -- Ending subscribers of 6.7 million to 7.0 million
    -- Revenue of $304 million to $310 million
    -- GAAP net income of $9 million to $13 million, or $0.13 to $0.18 per
       diluted share

    Full-Year 2007
    -- Ending subscribers of 8.0 million to 8.4 million
    -- Revenue of $1.25 billion to $1.3 billion
    -- GAAP net income of $55 million to $60 million, or $0.76 to $0.83 per
       diluted share

    Float and Trading Plans
The Company estimates the public float at approximately 55,863,475 shares as of December 31, 2006, up 1 percent from 55,230,571 shares as of September 30, 2006, based on registered shares held in street name with the Depository Trust and Clearing Corporation. From time to time executive officers of Netflix may elect to buy or sell stock in Netflix. All open market sales are made pursuant to the terms of 10b5-1 Trading Plans approved by the Company and generally adopted no less than three months prior to the first date of sale under such plan.

Just my opinion- you were right the first time

Bail or short

Fast Money on CNBC talked about NFLX tonight, they interviewed the CEO.  Here is what I heard:

-Up 10% after hours
-2.1 million subscribers added
-Video on demand not heating up the business but they have 70,000 DVD titles for users to choose from, CEO says that is the core of why they are doing well, in addition to great pricing
-They got kudos from the traders on Fast Money on a great quarter
-Blockbuster is a small headwind, but the CEO didnt seem worried
-Expect over 8 million subs by end 08, etc.

Good stuff, congrats David!

Thanks basonista, boatguy and tokyopua

Here's my current take on NFLX:

I think it is a terrific company and a stellar long term holding. But I'm concerned with the price I'm paying for it.

You see, with the 2006 full year results and 2007 internal expectations, the trailing earnings multiple is 35.56 and the forward earnings multiple is 31.56 (this considering yesterday's after hours closing price of $25.25, up 11% from the regular session close).

If EPS growth is 20% a year for the next 10 years, in 2016 EPS will be $4.4. Apply an average 16 earnings multiple and get $70.4 for the share price.

Considering these rough estimates, average annual share price increase will be:

$25.25*(X^10) = $70.4 <=> X^10 = 2.7881 <=> X = (2.7881)^(1/10)

<=> X = 10.8%

This is just a little more than the market average long term growth rate of 8%. Not enough, as I'm looking for at least double the market average, that is, 16%.

Although NFLX is an astounding company, I don't think we can realistically expect more than 20% average annual EPS growth for the next 10 years, what do you think?

So, my take is, NFLX is a great long term holding, but the price paid is not right.

Yesterday's news wasn't totally unexpected to me, as I saw those 4th quarter estimates kind of "artificially" low, that is, logic didn't support that 15 cents EPS estimate, since they made 25 cents in Q2 and 18 cents in Q3, I would expect EPS to rebound at least some, given the strong and continuing revenue growth.

I'll use this opportunity to correct the kind of mess I've been doing on NFLX and take profits as the market opens. I'll keep the stock on a close watch and will get back in when those long term estimates point to a 16% or more long term average annual yield on my investment, ok?

The trading plan for NFLX is SELL.

Great analysis as always, David!  Applause!  I'm going to hold a little longer.  After earnings were reported in October, NFLX gapped up, pulled back a little and then moved higher to a double top at $30.  If it follows this same pattern, we could be looking at another move up to around the $30 level again.  Indicators are way oversold and improving and volume is strong right now.  Stop will be below support around $24.00.

Good luck to us holders on! 

I agree with David that it may be good to sell now and pick it up later for a cause. I think NFLX will recede to $23-ish before making the possible launch basonista is talking about. I sold at $24.25. My wife was swifter (i.e. less greedy) and let go at $24.4 on her account.

David, I agree with your decision on this one. I feel this "stop and reverse" was made too much on emotion anyway.

The online offer is free and won't add meaningful revenue any time soon, let alone getting any kind of revenue outside US as it stands now. Perhaps down the road your thesis on worldwide subscrption can be realized, but there is too many unknows from here to there and I imagine competition from BB, Apple, Amazon etc. will be fierce. They just had to lower the basis subscription fee...

Plus, I think you "covered and bought" NFLX at premarket, why didn't you sell it at premarket too?   (I am glad I did   )

QuotePlus, I think you "covered and bought" NFLX at premarket, why didn't you sell it at premarket too?  (I am glad I did )

I'm afraid I wasn't looking (also there's no habit of entering pre-market or after hours orders). I sold at $23.91 (although I still couldn't put it on the Portfolio page, some server error there not allowing me to make changes).

I'm glad most of you sold in the pre-market

I got out at 24.04 after netting 12% on this. After that initial bearish trend made me nervous so I resisted getting in long and I am glad I pulled the trigger when I did. Only had this a few days.  I did have this one day a while back after making money shorting it and longed it for a day and sold it. I need to have a realcoolhead as well. They are right when it comes to being patient, it truly is a virtue.

I also agree with the analysis David so you are getting much applause on this end, thanks for your efforts. I happen to be an account member of NetFlix. I would like to speak with their marketing person that came up with their "your DVD will arrive usually within one business day". Their one business day pledge falls short and it usually takes 3 business days for me to get DVD's. Anyone had experience with that as well or is it because I live in the sticks of Wisconsin and encased in this darn chedder curtain?