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Netflix, Inc. (NFLX) Message Board

  • americanset21 americanset21 Oct 13, 2011 9:17 PM Flag

    The Short Case For NFLX

    1. Content is non-exclusive except for EPIX, which is only exclusive for non-cable competitors.

    2. Because of (1) NFLX can easily be replicated for a few billion dollars by any competitor for much less than $12B (NFLX market cap)

    3. Adjusted Operating Cash Flow: Cash flow does not lie, but accounting can -- NFLX has seen declining year over year Adjusted Operating Cash Flow for four quarters in a row, when you adjust those flows by deducting the rapid rise in accounts payable it has seen throughout the past year. Accounts payable in 1Q11 has risen $200M year over year -- 4X more than pre-tax income. NFLX’s management is hiding this in its earnings, which appear to be growing but are only doing so by deferring amortization expenses.

    4.Amortization to Content Acquisition Ratio: This ratio measures the rate at which NFLX is amortizing or expensing its content relative to its cash outlays for content. The ratio has been dramatically falling year over year, demonstrating that before NFLX began its streaming ramp and was just doing DVD mailing, it was amortizing at a much higher rate in 2009. In fact, it was amortizing nearly 2X more -- thus why EPS is growing while cash flow (as explained above) has been falling. If the ratio was adjusted back to historical levels, pre-streaming NFLX Adjusted Net Income would be negative the last three quarters and declining year over year thru 2010 and 1Q11.

    5. Paid Subscriber Momentum (PSM): Simply put, this is a measure of how many paid subs NFLX adds in each quarter, excluding the free subs it carried over from the prior quarter. I am focused on this measure domestically because I believe management has seen the first signs of subs slowing here and is thus why it engages in an attempt to refocus investors internationally. Furthermore, why should investors, when looking at the current quarter, care as much about free subs that get converted to paid ones from last quarter when trying to gauge sub momentum? In other words, this attempts to eliminate the free sub game by management as it tries to smooth out sub adds in any given quarter. In any event, as you can see below, the PSM has dramatically slowed and is expected to decline for the first time in 2Q11, even if NFLX hits the top end of its range of subs 24-24.8M.

    6. Off-Balance Sheet Content Obligations: These obligations rose 60% sequentially to $1.6B in 1Q11. With $275M in Shareholder Equity if the off B/S Content Obligations were not off B/S and classified as debt or liabilities NFLX would have negative Net Worth. I think that speaks for itself on why it's important to track.

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    • I agree about the competition. I just cancelled netflix streaming because the content is just not there. Plenty of quantity but how many good missed independent movies are worth watching. I may reup in a year after netflix refills it's library.

    • exactly

    • OK FOLKS



    • Because of "1" Apple TV will not be buying out NFLX. Again the market cap on NFLX is just too large and NFLX business is nonexclusive. That means anyone can duplicate it. just like they are doing now.

    • Awesome post bro. What I don't understand is HOW IN THE WORLD is NFLX Still trading above 100? People are so Dumb...All the executives dumped all their shares yet people continue to buy...It is unbelievable the number of idiots who can't see the writing on the wall.

    • NFLX earning mirrors the "burn ratio" of the dot com stocks. Back in late 90s analysts (and dot com companies) jack up the stock prices to insane levels. Remember PainWebber's target price on QCOM of $1,000 per share? Also Merrill's top internet analyst Henry Bolget invented the "burn ratio" to value the dot com companies? Many who followed his advice bought JDSU at over $1,200 per share (closed at $10.91 today), BRCM at over $180 (closed at $37.93 today), BRCD at over $130 (closde at $4.91 today) and many other companies that are long gone.

      You are buying the illusion, you are buying the manufactured stories and hopes with real cash. The stock is worth what its price is TODAY, not the $300 three months ago. You are not getting any deal. The stock may go up next day (yes, pump and dump - the old wall street game). But the stock is on the down trend.

      Dollar cost averaging? Buying more when it is "CHEAP"? I feel sorry for all of you who are brain-washed-by-the-crooks. Read this message when it gets cheaper and goes down to the drain and you start to panic. Only then you will know the pain caused by grabbing a falling knife.

      Still hopping? SET A 5 TO 8 PERCENT STOP LOSS below today's low. If it goes up, raise the stop-loss. When the reality kicks in, you won't get killed and will get stopped out and all pains will be relieved.

      If you have lost money then you have lost money. Just because you hold on to your looser does not mean you are not out of the money. It is psychology only. Dont get killed. Otherwise, no matter how good of a chance you may get in the future, it will no chance for you. Because you are killed by a single stock.

      Good luch all you longs!

    • It is just amusing to see how many "bag holders" are hopelessly trying to talk this stock up. maybe in the long run, but this stock is going down for the short term. deal with it... market soars and nflx is down 1 %. what does that tell you?

    • Don't forget a still overinflated trailing P/E ratio.

    • My mantra: owning content and competitors coming with deep pockets = Netflix's downfall. Competitors with deep, deep pockets. Billions. How much cash on Netflix's balance sheet? That's why I short it at $225. No Ph.D. here, just common sense is all that's required. So who wins? The renters/aggregators of content lose. The owners of A-list content win. Which camp does Netflix belong to?

    • Yeah, subscriber growth decreased due to the PR SNAFUs but I don't expect that trend to continue. I do believe that subscriber growth will expand. NFLX has had previous periods of negative subscriber growth on their way to 24M subscribers.

      As for the DVD portion of the business. Yep, it is going to go away, but in the meantime, it continues to generate cash, which is always nice. Apparently it is not going away as quickly as I thought or there wouldn't have been a outcry into splitting NFLX into two parts (which I still think was just nutty). It will be interesting to see how NFLX deals with this going forward.

      The future is streaming and until someone knocks off NFLX, I will maintain my shares. AAPL is always a threat to anyone, but they are in a slightly different market as they are selling movies not renting them out.

      We'll see. I am not a raging bull on NFLX, but I do not think that they are going bankrupt either.

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