NFLX - Sector: Services---Industry: Recreational Activities

[chakkar]

Just went through the NFLX earnings release: a good quarter all around.

Press Release:
http://biz.yahoo.com/prnews/050725/sfm018.html?.v=19

Associated Press article:
http://biz.yahoo.com/ap/050725/earns_netflix.html?.v=5

=QUOTE from AP Article=

Emboldened by the second-quarter surprise, Netflix management predicted it will finish this year with a profit of $2.4 million to $11.9 million, a reversal from just three months ago when the company warned it might lose as much as $15 million with Blockbuster hot on its trail.

=End QUOTE=

Technically, I think the stock is poised for a breakout (please see P&F chart below), especially because the volume on this upleg, relative to others, is very small. Add to that that fact that trading closed at $19.00 at 19:59 in the after-hours market, 12% above the 16:00 closing on heavy volume (the 2.2-million after-hours share volume was only second to the QQQQs on the NASDAQ and is above the 1.6-million daily average).

Further, note that 14.0-million shares are short, per YahooFinance, and that is 30% of the 41.0-million share float. Even the most ardent sceptics of this company will have to admit that this was good quarter. The only question is whether the valuation at 39 P/E (on $16.96) for the year ending 31-Dec-2006 is expensive.

Finally, note that cash flow was just incredible: from investing activities, $29.4-million for the June quarter and $65.9-million for the half-year ended 30-Jun-2005. Annualised, that's about $130.0-million or $2.03 per share. Cash at 31-Jun-2005 was $171.0-million or $2.67 per share. No debt on the balance sheet, by the way.

Bought in the after-market at $18.98.

[chakkar]

Great volume today. The P&F chart confirms the break-out as of today.

Additional notes:

• more than 7 times {average volume of1.6-million}, much of it above $20 (very good)
• close of $19.01 is 1¢ above the low of the day (not good; will probably move lower tomorrow); volume between $20 and $19 is relatively low (good)
• I would sell only if heavy volume took the price down to $17.50
• P&F price target is $35, implying a close of the gap/down-leg from Jul-2004
• As an aside, been wondering if NFLX is a good fit for AMZN (found discussions through YahooFinance message baords)

Would appreciate more sophisticated traders' short-term price perspectives.

[setravis]

Looks to be headed higher.

[buffalo_wayne]

I bought a few shares of NFLX at 28.21
Do you guys think I made a mistake since I need the shares to reach at least $35 to earn a decent profit? Is it conceivable? or do you think I have more to lose?

I could still sell back in the 29ish and get my money back (and broker fee covered)

thank you for answers

[rurouni]

I bought a few shares of NFLX at 28.21
Do you guys think I made a mistake since I need the shares to reach at least $35 to earn a decent profit? Is it conceivable? or do you think I have more to lose?

I could still sell back in the 29ish and get my money back (and broker fee covered)

thank you for answers

Hi BW,

It is hard to say.  If your break even price is $29ish then anything above that is all gravy.  I think it is worth the ride as long as you are not in the red.   Your definition of a decent profit may be different to others.  Good luck on your trade.

[Terliso]

Netflix where I rent my DVD's... excellent service, THUMBS UP


NetFlix returns to profit
DVD rental company raises revenue and subscriber forecasts.
April 24, 2006: 5:53 PM EDT

LOS ANGELES (Reuters) - Online DVD rental company Netflix Inc. turned in a larger-than-expected quarterly profit and raised its revenue and subscriber forecasts, sending its shares to a new 52-week high in after-hours trade on Monday.

The company reached 4.87 million subscribers during the quarter from 4.2 million in the fourth quarter. The company raised its 2006 subscriber target to 6.3 million from 5.9 million.


The strong earnings report and bright forecast boosted the company's share price (Research) 3.4 percent above its previous 52-week high.

Net income was $4.4 million, or 7 cents per share, compared with a loss of $8.8 million, or 17 cents per share, a year ago.

Revenue rose 47 percent to $224.1 million from $152.4 million in the year-ago first quarter.

Analysts, on average, were expecting net earnings of 1 cent per share and revenue of $221.2 million for the first quarter, according to Reuters Estimates.

The company also saw churn, or subscriber cancellations, drop to 4.1 percent from 5 percent in the year-earlier quarter.

Subscriber acquisition costs fell during the quarter to $38.47 from $38.68 a year ago.

Netflix forecast second-quarter net income of between $9.5 million to $13.5 million, revenue of $238 million to $242 million and ending subscribers of 5.1 million to 5.3 million.

For the fiscal year, Netflix expects net income of $29.5 million to $35.4 million, pretax income of $50 million to $60 million, revenue of at least $990 million and ending subscribers of at least 6.3 million.

The company's earlier forecast had been for fiscal year revenue of at least $960 million.

Wall Street expects net profit of $11.2 million and revenue of $237.3 million in the second quarter, and fiscal year net profit of $33.9 million and revenue of $977.97 million.

Netflix shares rose 11 percent during the first quarter, which ended March 31.

During the same period, shares of rival Blockbuster Inc. (BBI.N: Quote, Profile, Research) rose 6.4 percent to $3.97, while Movie Gallery Inc. (MOVI.O: Quote, Profile, Research) dropped 47 percent to $3.02 on declining same-store rentals and now-resolved problems with its debt covenants.

Netflix shares rose to $32.82 in after-hours trade on Monday on INET -- surpassing the previous 52-week high of $31.75 on April 19 -- after closing at $31.24 on Nasdaq.

[stout7735]

Netflix is _SO_ 2005...I will eat my shorts if they meet their targets in 2006...

[bjc]

I believe this would fit pretty well in the ascending triangle thread.  Broke through the top line of 30 in the past week or so and this will for sure bring in the volume to verify the breakout.  Looks pretty good..

[Stocky2000]

upgrade

Netflix upped at J.P. Morgan, technology concerns overblown

LONDON (MarketWatch) -- J.P. Morgan upgraded online DVD rental services provider Netflix, Inc. (NFLX :
Netflix, Inc.
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NFLX21.18, +0.95, +4.7% ) to overweight from underweight, saying it believes investors are overly concerned about growth risks tied to technology changes. The broker told clients it sees Netflix reaching 16 million subscribers by 2010. In addition, it said that with limited selection, difficult TV connections and no pricing advantage over physical DVDs, it doesn't see video downloads as a meaningful threat to Netflix over the next three to four years. "We also believe that Netflix's ability to combine DVD by mail with movie downloads will allow it to compete effectively in the nascent download market," J.P. Morgan concluded. End of Story

[sebfr]

Hi,

Technical analysis says me to SELL this stock..

Technical analysis :
1. We have a breakaway gap near strong resistance..
2. Retracement of 50%
3. Major DOWNTREND
4. Volume : very low on pullback

Close at 23.01
stop-loss at 23.97
First target at 19

Reward/Risk ratio of 21.10 / 4.17 = 5...Great

[David Randolph]

Hello, this is the new thread for NFLX's short trade, separated from HLIT's long.

I'll copy the related posts of the initial thread, which was Long HLIT & Short NFLX to this new thread and move the old combined thread to the Members Corner.

The following was the initial recommendation:

«I've been thinking about this macro trend, from movie rental to movie download, for a long time, but Apple TV tells me the time is now (although I guess Apple TV will only work with iTunes, there are several other devices which allow any downloaded film to be watched on TV, like a Kiss DVD player, for example).

It is already possible to download videos from the internet and watch them in your television set, my friend and partner Ramsburg has been doing it for years. But now I see it becoming the mainstream.

HLIT's business description is:

Harmonic Inc. is a leading provider of versatile and high performance video solutions that enable service providers to efficiently deliver the next generation of broadcast and on-demand services including high definition, video-on-demand, network personal video recording and time-shifted TV. Cable, satellite, broadcast and telecom service providers can increase revenues and lower operational expenditures by using Harmonic's digital video, broadband optical access and software solutions to offer consumers the compelling and personalized viewing experience that is driving the business models of the future.

HLIT is the future.

NFLX is the past:

Netflix, Inc. operates as an online movie rental subscription service provider in the United States. It provides its subscribers access to a library of movie, television, and other filmed entertainment titles. As of December 31, 2005, the company provided approximately 4,200,000 subscribers access to a library of approximately 55,000 movies, television, and other filmed entertainment titles. Netflix was founded by Reed Hastings in 1997 and is headquartered in Los Gatos, California.

In the not so distant future, people will not be willing to wait for a DVD coming with the mail. They will download and instantly see it on TV.

Technically speaking, HLIT is bullish and NFLX is bearish:





HLIT had a strong quarter in Q3 2006 and the CFO said yesterday in a Needham presentation that Q4 will be the strongest of the year (and there's no seasonality). I particularly appreciated Q3, because gross margin rose from 43% to 50%, and we've been seeing that an expansion in gross margin is one of the most important factors in stocks about to explode in price. Since management says Q4 will be even better, and with the current macro trend, I'm a bull on the stock.

I know NFLX also has growing revenues and rising gross margin, but it is valued at 30 times next year's earnings, and I don't think that business will be around in three years time, at least not with the current business model.

For the following updates I'll separate this thread in two, because these are two different trades (although connected).

The trading plan is:

Buy 6.66% of capital in HLIT and short 6.66% of capital in NFLX.»

[David Randolph]

Reply #4 on: January 12, 2007, 03:32:47 PM, by realcoolhead:

«This is the 1st time I followed a short recommedation and I am a bit nervous. I have two questions:

1. For shorting in general, shall we have a target price? I imagine at some point, there is no point staying in a short position as the most you can make is only 100%. 

2. For a volatile stock like NFLX, is it prudent to hold the short position over its earning report? I am kind of fearful when I looked at the huge gap on its last earning back in October... »

[David Randolph]

Reply #5 on: January 12, 2007, 03:37:44 PM, by nutsterrt:

This is the 1st time I followed a short recommedation and I am a bit nervous. I have two questions:

1. For shorting in general, shall we have a target price? I imagine at some point, there is no point staying in a short position as the most you can make is only 100%. 

2. For a volatile stock like NFLX, is it prudent to hold the short position over its earning report? I am kind of fearful when I looked at the huge gap on its last earning back in October...

Your first question, it's possible to go over 100% on a short. For example, let's say you bought 100 shares of Netflix at 23.00, and it tanks after earnings, driving the price down to 5.00 (just bear with me!). Your sale price was $2300, and you covered for $500, a profit of $1800 on a $500 purchase, or 260%...

(Someone please correct me if I'm full of it)

[David Randolph]

Reply #6 on: January 12, 2007, 04:02:46 PM, by David Randolph:

«

Your first question, it's possible to go over 100% on a short. For example, let's say you bought 100 shares of Netflix at 23.00, and it tanks after earnings, driving the price down to 5.00 (just bear with me!). Your sale price was $2300, and you covered for $500, a profit of $1800 on a $500 purchase, or 260%...

(Someone please correct me if I'm full of it)

Hi nutsterrt, I also had that same doubt for years.

First, if you bought NFLX at $23 and sold at $5, as you wrote, you would lose 78% of your investment

But I understood you. If you sold 100 shares short of NFLX at $23, you sold a $2,300 value. When you buy the stock to cover your short position at $5, you pay $500.

The difference (or profit) is $2,300 - $500 = $1,800.

So, your initial investment was $2,300, your final capital was $2,300 + $1,800 =  $4,100.

The profit on your investment was $4,100/$2,300 = 78%.

The conclusion is: you can only make 100% of profit in a short sale of common shares, unless you leverage your capital or use margin.»

[David Randolph]

Reply #7 on: January 12, 2007, 05:26:03 PM, by David Randolph:

«There are five possible ways to make more than 100% profit from a declining stock, all of them include leverage:

1) Buy put options;
2) Buy put warrants (more common in European markets);
3) Sell call options short with leverage;
4) Sell single stock futures if available for that specific stock;
5) Sell the stock short using leverage or margin.

All of these strategies involve more than normal risk and I wouldn't recommend it to anybody. I believe shorting is a losers game over the long run.

NFLX's short (just selling common shares without leverage) is a short/medium term trade. I'll probably close it with about 30% profit if I have the chance to do it quickly.»