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

[realcoolhead]

Daivd, I was concerned because $40 million is almost their entire profit in 2006.

But as I dig further, I saw this after their October earning (from Jefferies & Co):


"Management's preliminary FY07 guidance is for $55-60M in GAAP net income, reflecting the impact of $40M in expenses associated with the roll out of the company's digital download service. "

So this $40 million was already factored in the earning estimate. 

Jefferries put out a new article today, here are the key points:

•   Netflix announced its online movie solution, providing more details about the much anticipated offering. Salient highlights of this offering are:
•   Netflix would offer the online movie feature to its DVD rental subscribers at no additional cost. The company plans to roll out the feature to subscribers in a phased manner with a full roll out by June '07.
•   Users would be able to view online movies on their personal computers. The service offers popular features such as instant playback, pause and ability to jump to any position in the movie.
•   Initially, online content on Netflix would consist of roughly 1,000 movie titles and TV series from major studios (e.g. NBC Universal, Sony Pictures, MGM, Warner Bros etc). The company plans to add more content as it signs up more licensing deals for online rentals.
•   Subscribers would be allocated online viewing hours depending on their subscription plan, starting with online 6hrs for a $5.99/mo plan.
•   Netflix's solution compares favorably with online movie offerings from both Apple(AAPL, $94.62, NC) and Amazon(AMZN, $38.20, NC) in a number of ways: a) Netflix's service is targeted at DVD rental subscribers and is offered at no additional cost, while Apple and Amazon customers pay for content, b) Netflix offers online rentals only vs. more expensive download-to-own offering from Apple with a limited title selection and c) Netflix offers instant playback compared to longer wait time for Amazon's service.
•   We believe that bundling free online video with DVD subscription plans would also make Netflix's service more competitive with Blockbuster's (BBI, $6.43, NC) Total Access, and help drive subscriber sign-ups. The new service should also make NFLX offering more sticky and help reduce churn.
•   Overall, we believe that Netflix's latest offering is a step in the right direction and would allow the company to grow its service while offering more to subscribers by keeping pace with technological developments.
•   At $22.71, NFLX trades at an EV/EBITDA of 12.3x, and a P/E of 27.1x (GAAP, fully-taxed) on our FY07 estimates vs. the group at 9.6x, and 22.0x, respectively. Our FY07 price target of $32 per share is derived using a 5-yr DCF.
•   Risks to Netflix include higher than expected churn, SAC, and online video content costs.

Your timing might be a little bit off but it looks like this new development is very positive. 

What about the near-term earning hit? I see they are spending $40 million on it.

I'm not sure I understood the question realcoolhead, but $40 million is a very low price to pay to access the world market without opening a single store

[Terliso]

Ouch, this has been a painful session. It looks like I had the courage, the flexibility, but didn't have ... a real cool head

The timing to go long is not so good, we should have waited when the price is come up & close above 50sma (daily chart).

To be bullish again in NFLX, the 50sma must cross the 200ema & 200sma below & from that point the price must come up & close above the 50sma.

-- We don't know how far down NFLX is going to run away from the 50sma, so by entering NFLX in the close above 50sma is a much safer bet I believe & probably much profitable. (T2T input)

[rickjust]

hi ,
i agree. the chart has not yet turned bullish. while there is a good case for the fundamentals, unless the chart says to buy on the technicals then you are left with a poor entry. i know how hard it is to time entries cause i try to do it everyday , as of late with some success as i have been a lot more careful with my trading.
given that you are doing such a great job on the fundamentals david, and that you are an exellent technical trader already, a combination of these two aproaches will garner the most rewards. if you are buying soley on the fundamentals then this doesn't matter and you can put it in the bottom drawer and forget about it until next quarter . then a daily update is of little importance. a daily update can only be frustrating for a long term hold.
p.s. thanks for the input analysis on ptsc, it was greatley appreciated. i sold this morning with no regret.
maxi

[elliemae]

I have not shorted a stock in quite some time, the psychology behind it can get you.  For me, when holding a shorted position, if that stock gaps up on news like NFLX, it is a whole lot harder to hold than when you are long on a stock and it gaps down on news.  I guess that's where the "short squeeze" arises from.  David, don't beat yourself up over this trade.  Every trade is a gamble, no matter how much charting and fundamental analysis is used.  If you have ever played craps,  The pass side of betting is a lot more fun than the don't pass side, but if you switch to pass from/to don't pass it will mentally wear on you and you'll walk away from the table scratching your head and licking you wounds.  If NFLX had closed at $26 today, you would probably feel like it was a good trade.  Sometimes, the  wins, but not always, so start a new tomorrow! Sunny days ahead.

[HANDBALLJIM]

I was planning also on the reverse...but by accident...instead of buying to cover NFLX...I purchased more NFLX.  Make a long story short it totally messed up my plans....and it took all day for Etrade to flatten the trade out. When you have a short and a long in the same position it basically evens out...and the buy price they just use as the cover price. (They should have a system that prevents you to even make a mistake).

It turned out okay after all...since I only lost $60 on the trade. This was all done pre-market session 8:05am...the stock jumped another $1 a little while after...and then came back down to almost yesterdays close. A non trade would have been the best move today for me.

I do agree that NFLX outlook is better now than yesterday, but I feel we might see some small profit taking in the markets...which might drag down some leading sectors...technology. Let's hope I am wrong.

[TerryG]

Plenty of time, the Instant Viewing download is not scheduled until June, and the picture will change by then.

[David Randolph]

Thanks a lot for the great posts and support

I agree with everybody. I guess Rickjust hit the right spot, with thousands of stocks outthere with very attractive technicals & fundamentals combined, why buy stocks with just one harm pushing them up?

It probably is a waste of time to fight the market, even if fundamentals are sound (which I'm not completely sure they are on NetFlix).

After learning technical analysis, fundamental analysis, and how to identify macro trends, I really need to learn how to have a more cool head, as realcoolhead has been saying I'll work on that.

As for NetFlix, as I went away from the computer all day yesterday and read nothing, I thought more about this investment, and it makes perfect sense in my head. NFLX is now the largest movie rental business in the world, with $1.56 B in market cap. Estimates point to $1.37 B in 2007 sales.

All this from www.netflix.com, without opening a single physical store. This business was impossible just a few years ago. You had to open stores in different locations to expand your reach for consumers. Now all you need is a popular website.

www.netflix.com is so popular that they already have more than 6 million subscribers. They have the money and the power to improve their service, as yesterday's news shows, with the 40 million dollars investment on the service to stream films through the internet.

With this internet offering, over the long term, they will be able to reach consumers worldwide from their website. Instead of, like a MacDonalds, or indeed a BlockBuster, having to open thousands of restaurants and stores across the world, they'll have global reach from a single website.

The profit implications of this technological change can be astounding, don't you think?

NFLX is positioned to conquer the world of the video rental business. I don't know about you, but I see dozens of video-clubs (do you call them this way?) here in Mafra, Sintra and Cascais going out of business soon. Someone else will take their business away, because that someone else is more technologically advanced. And after absorbing the market, NFLX will maintain a much higher profit margin than traditional brick and mortar businesses.

I'll keep on holding NFLX, this company can grow several fold over the next 5 years, it has everything in its favor now.

[David Randolph]

"Management's preliminary FY07 guidance is for $55-60M in GAAP net income, reflecting the impact of $40M in expenses associated with the roll out of the company's digital download service. "

So this $40 million was already factored in the earning estimate.

Yes, realcoolhead, the "news" wasn't really new, that's why I'm losing 6% on this trade. But not being new doesn't change the fact that it exists and is a very positive development.

There's much debate about video online services. Apple let's you download films from iTunes starting $9.99 per film. NetFlix let's you watch potentially 90 different films a month for $18. It will let you watch films instantly over the internet with $0 cost (for the next 12 month period or so).

I don't know where I've read it, but NetFlix's CEO expects its subscriber base to grow from the current 6 million to 20 million by 2010. Revenues would triple. Profits would probably more than triple. The stock would at least triple.

That means a 44% average annual return for the next 3 years. I'll take it.

[Terliso]

There's much debate about video online services. Apple let's you download films from iTunes starting $9.99 per film. NetFlix let's you watch potentially 90 different films a month for $18. It will let you watch films instantly over the internet with $0 cost (for the next 12 month period or so).

What! Apple charges $10.00/ film? that is too much (no wonder apple makes a lot of money) I would rather go to Netflix.

--- Apple also sells their music $0.99 cents per song... again, I would rather go to www.allofmp3.com only $0.10 to 0.15 cents per song 

[Terliso]

Look, I've downloaded 7.81GB of music from Allofmp3.com for a very cheap price...

[lancefur]

Maybe we should have stayed in the short position for a little while longer? I got killed again. Hopefully this was just a bad day for everyone and tomorrow 3SOF will bounce back.

[HANDBALLJIM]

Look, I've downloaded 7.81GB of music from Allofmp3.com for a very cheap price...

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.

Maybe we should have stayed in the short position for a little while longer? I got killed again. Hopefully this was just a bad day for everyone and tomorrow 3SOF will bounce back.

I felt the correction coming, QQQQ (NASDAQ 100 Trust Shares)
volume was light on Tuesday and Dow making new highs...as you see we got hit real hard today. Friday will be interesing...we might see a bounce in the morning...and get a false reading...then finish the session lower again.

People can get very scared when big name stocks get beat down...AAPL, INTC, and IBM after hours down like 6%. (in the past if IBM had a bad day...the stock market had a bad day)

Just checked Bloomberg channel and Dow futures are down 20....

[Terliso]

Look, I've downloaded 7.81GB of music from Allofmp3.com for a very cheap price...

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, whenever you are dealing in a website check your "URL" before giving your personal information to them, make sure your URL is showing "https" "Hyper Text Transfer Protocol" with an added dash of "s", or Secure Sockets Layer <---- that means you are giving your personal info in a secure manner.

In my experience, I can say that the website is legit. I am a downloader in www.allofmp3.com for more than two years & those people in the other side of the world never gave me a problem....I'm a happy guy! I get songs for cheaper price..


My payments record below, see for yourself:

[David Randolph]

Thanks for that music website Terliso

Maybe we should have stayed in the short position for a little while longer? I got killed again. Hopefully this was just a bad day for everyone and tomorrow 3SOF will bounce back.

Yes, we should, but of course that is always easy to know after the fact.

My hope is the same as yours, since yesterday was one of the worst days in the history of the Stocks on Fire (now Main) Portfolio.

Let's see what today, but especially the next week, brings.

In the meantime I'm not willing to sell NFLX. I'm already selling NVLS today, but I need a cool head over the weekend to think this over. I don't want to rush to the selling door just because of one nasty day on the general market, since the trend shows we're in a bull market.

I'll keep holding NFLX, as it approaches the $21.95 support level.

[Terliso]

There's much debate about video online services. Apple let's you download films from iTunes starting $9.99 per film. NetFlix let's you watch potentially 90 different films a month for $18. It will let you watch films instantly over the internet with $0 cost (for the next 12 month period or so).

What! Apple charges $10.00/ film? that is too much (no wonder apple makes a lot of money) I would rather go to Netflix.

--- Apple also sells their music $0.99 cents per song... again, I would rather go to www.allofmp3.com only $0.10 to 0.15 cents per song 

Ohhh man, Apple, apple $10.00/film ---EXPENSIVEEEEE!!!

Here, I'm giving you more cheaper prices if you want to watch movies through online. It's www.GUBA.com $0.99 cents per film, how's that sound? sounds good ain't it?

PS. GUBA movies selection are not that many, lots of them are old. So, Netflix still far the best choice & fast shipping, no wonder the company is #1 in this kind business.