NFLX is still not cheap. It is trading at 74 times earnings right now. Trailing P/E is 74-75 range. Fundamentals don't look good considering its stock price and headwinds approaching (lower guidance, content costs rising, etc). Risky stock to hold.
My feeling is that stocks like NFLX with high valuations, lower guidance, and future headwinds will be sold off faster than companies such as Apple with solid revenue stream, good P/E ratio, etc. Smart money is not taking a risk right now with NFLX. Risk is being taken off the table.
NFLX is looking pretty weak right now. I will watch closely. Might consider a shorter term put. Inflation numbers for China will be reported this week along with other important economic data. Market still looks weak in my own opinion. Correction still underway. Watching broken support lines and retracement for S & P, Dow, and NSDAQ that were broken last week.
Looks like we are in a bear market. I called this pullback over a month and a half ago when the market was roaring.
Yes, we do have the same long term analysis. I admit that I have a difficult time calling the short term day to day price movements of NFLX. The options are in play big time here. There is lots of money to be made with NFLX options. The MM's understand this. When more shorts pile on, it does lead to eventual short covering and buying which pulls the stock upward.
Still, I understand that NFLX is facing legitimate headwinds in the next couple of months unless Hastings mysteriously pulls a bunny out of a hat and manages to move NFLX higher amidst all of the challenges.
Personally, I feel safer getting Sept. puts in a few weeks- prior to earnings in mid July- since the July put expires before earnings. September is the next month for puts. The September premiums are quite high right now. If the MM'S keep driving NFLX higher, those Sept. premiums will become cheaper and time decay will bring them down too.
Looks like pre-market is up. Deals are bringing the market higher today? Whatever. Last night futures were very red. They can change suddenly. I don't place much interest in following pre-market. Good luck to you.
We have the same analysis. I am just concerned too many bandwagon jumpers will try to short and get squeezed very near term. Within the next month, this falls off a cliff. Shorts should wait until the freefall starts to pile on. It has plenty further down to go...
Thanks for the feedback. I attempted to post that message as an original post ( topic starter ) for this message board. Unfortunately, I was consistently blocked for some reason by yahoo finance. I tried unsuccessfully to send that post several times last week. I even sent the yahoo helpdesk (contact us) a message stating my problem but they were not helpful. It is strange that I am only allowed to reply to messages on this board. I don't know if it is a technical problem or a censorship issue. But I don't like it.
Back to the topic about NFLX:
You bring up a good point about Hastings and Wall St. having already made a fortune on the rocketship stock of Netflix. I find it very interesting that Hastings and other top NFLX executives cash out their NFLX shares nearly each week. Many investors have speculated that these top executives understand some of the great challenges that await NFLX such as maintaining high growth revenue in a market that is increasingly growing more and more competitive. By cashing out each week, they are not signaling confidence in their long term prospects.
In my opinion, NFLX is swimming upstream without a lifejacket. NFLX will struggle to remain the # 1 movie distributor in the future.
In fact, I am expecting a miss at earnings in July. The international expansion (subs) numbers don't look promising and their content licensing costs are going up from around 23-30 million to nearly 300 million. Cash flow will become a major issue in the future even if they continue to double their subscription base. Does anyone know exactly when NFLX's higher content costs will be fully absorbed on their balance sheet? I heard that content licensing renewal with Starz will occur in the fall of 2011. What quarter will this cost increase impact their balance sheet?
At some point in the near future, NFLX will have to move in the direction of increasing their subscription rates to maintain their thin margins which will push more subscribers out the door.
Tomorrow should be very interesting. Pre-market futures are looking lobster red. NFLX will have a tough time moving higher tomorrow. Good luck!
Great post, schweitz. This covers a lot of good points that will inevitably lead this stock to a more sober level. The way I see it, yes, Netflix is a public company with an obligation to its shareholders. At the same time, Reed and his team have made their money. They built this company from the ground up and I'm quite sure that we are now beyond what any of them could have imagined. What happens at this point is almost secondary for them. Of course, it is business as usual for the company as it will continue to grow and try to increase revenues. But I think the past two years have been easy compared to what's coming up next. With a low barrier to entry and the competition right around the corner, in my opinion Netflix will need to be a lot more creative if the stock is to retain its current valuation in the coming months/weeks/days. I'm not so sure that these guys are up for the challenge. I could be wrong, but the recent website debacle makes me wonder...