What does it mean when you are the leader in the space and make pennies?
Belaboring a point from earlier (apologies to all) it is my experience that leaders often see the world differently than us green eyeshades. Which is why I fly a Cessna and Icahn can afford a G-550.
We see Netflix's thin cash flow, piddly margin and competition coming. I think Icahn looked at the situation and screamed, "Cooties. This is about Cooties!"
-Coinstar has Cooties. Nobody wants to go to a convenience store kiosk where creepy cootie drunks hang out, touch kiosk cooties or the cooties on their DVD's. Netflix DVD rental customers are cootie-phobic too.
-Theaters have Cooties. Us adults stop going long ago. Attendance has been declining for years, now mostly the 18-24 age profile. They don't like cooties either. This year attendance dropped another 20%. Over half of all new movies are going directly to rental or streaming
-Coinstar stock collapsed in July when investors realized streaming would take out Redbox DVD rental in a flash - the Cootie Factor. Equally obvious on-demand streaming current moviedom has a big uptapped market of people who have always hated . . . the Cootie Factor.
Cootie-obcessed Carl sees that most of the Coinstar's $562 million gross profit can do directly to the bottom line of the streaming company that grabs the market first. That's huge. Netflix has market dominance and a head start.
Hastings has cooties too. After screwing up pricing some time back, he's gunshy about taking the big leap into current movie PPV. Now his cash flow is real tight. He can hear heavy breathing of the competition behind him. He is vulnerable. The timing is perfect.
Icahn jumps. Three possible outcomes: run-up profit; somebody does a buy-out, or: Netflix announces current movie PPV and the stock spikes more.
What us green eyeshades see doesn't matter much. We can debate how much profit there is, product pricing, how big the streaming market is, whether a dominant player can hold position, etc.
But that misses the point. There is serious money just laying there on the table, just waiting for somebody to grab it.
Tagit, that's my Cootie Theory. LIfe should be fun.
But why? Why is it serious money? NFLX isn't making any money on it at all and they are the leaders. Why do they get this massive PE? Goog gets a 19! They are the money making masters of wall street and they get a 19. Someone in this economy is going to shell out $10b so they can stream video at a loss?
This stock is a pump and dump daytrader con job. That's how I see it.
You may be right. Mine is just an observation theory. We will find out shortly.
It's a fair question to ask with Netflix's weak finances, why all the action? I just daytrade so I don't care. But after Netflix bounced off $53 a third time a few weeks ago (a huge red flag) I asked myself what I wasn't seeing on Netflix's income statement. The answer was glaring: current movie PPV revenue. That big unknown market had to be what was driving streaming competition. That's my theory.
We don't know how much money there is in current movie PPV streaming, but we have a clue. Most of Coinstar's $562 million gross profit is from Redbox. Nearly all could go to the bottom line of a streamer. Maybe $5/sh income after tax. And that is only part of the potential PPV income stream. That had to be why Amazon and others are interested.
Real? I don't know. But serious money, yes. Enough to ignite Netflix stock interest.
If Netflix flames out, your analysis will be proven right. If they announce PPV in the next month or two, mine will look good.