First of all, let me state my position up front; unlike many, I don't hold any stock very long. I have at times been short NFLX; at other times, long. If history taught me one thing it's not to hold overbought stocks in an overbought market nor short oversold stocks in an oversold market.
I've read your posts and agree they reflect the typical short position well. Therein lies the rub !
You throw out numerous "facts" which are clearly debatable; in fact, many untrue. If you throw out enough, some will believe one or two, correct ?
The short story would be more acceptable if they hung their hat on a specific issue rather than throwing out numerous debatable "facts". What is the specific issue here ? I hear the business model itself is doomed for failure, also hear the price increase is the issue, also hear competition is the issue and finally, the future of video delivery is the issue. It simply smacks of "throw enough darts, one will hit the board".
It is the same slant the shorts took with AMZN when they were all shorting it at 10. How many times did we hear, "this company isn't worth 10, it'll be out of business in a year" ! "Just wait until Barnes and Noble is up and running; AMZN will be cooked" ! Last time I looked AMZN was 60 two years later in a bear market !
Am pretty familiar with this company having listened to every call and analyst meeting the past 2 years unlike most shorts and longs who most likely have never listened to one in their life.
You state their customer demographic profile is that of a "tech savvy" individual. I'm not sure what "tech savvy" means however, their two fastest growing customer profiles are 1) females 2) 40 - 50 year olds. In fact, the "typical" profile now is a 38 year old female. None of these facts strike me as "tech savvy" but again, I'm taking your term to mean some 18 year old male geek who rents 30 movies a month if and when he can afford $20. Clearly, not true.
Competition, you state all WMT has to do is "hang up a few banners" in their stores and they will rule the world. If so, why haven't they done this ? Why don't we read that this is the newest market WMT is dominating ? Lastly, why are YOU a NFLX customer and not a WMT customer ?
BBI throws together some "in store subscription" service that they keep secret from their own customers basically. This is competition ? Actually, I'd call it a very poor response by BBI knowing someone is eating BBI's lunch on their home turf, namely NFLX and WMT.
So, my first question is, if the business model itself is doomed for failure, why do the shorts throw out WMT and BBI constantly ? Do you know many business lines "doomed for failure" that WMT has ANY interest in ? Actually, I see WMT and BBI as validation of the fact that someone else has hit upon a model that does work, not the opposite.
Pricing, we can debate the impact of the upcoming increase until the cows come home. The fact is neither the shorts nor longs will know the impact until year end. Will there be increased churn of the base in June; of course, the company clearly laid that out. Myself, I don't see that as an issue; in fact, short term loss of heavy users can be a long term benefit to margins and future churn rates. The bottom line though is nobody will know until it is proven one way or the other.
Downloading; I've heard we'll "all be downloading" movies for 5 years now. 5 years later and I'm not. I don't see it and I don't believe anyone can state definitively what the future will be. The only fact I can throw on the table is that NFLX will be rolling out it's own downloading service this year.
Acquisition cost; NFLX has stated consistently that acquisition cost will remain $34 - $36 per customer. Going so far as to say that TV advertising will be limited to ensure they don't surpass this target. In other words, they won't advertise the hell outta something only to run up costs. If they need to limit TV to meet their target, they will.
Unlike many who played games with their income and expenses, AOL for one, NFLX doesn't play games with their numbers; all acquisition costs are expensed the quarter of customer acquisition. They have stated their costs, they've stated they will not exceed them simply for excess growth and they've met their cost targets. Acquisition cost this past quarter with record growth was $35.
Finally, let's review some facts from the past quarter and year:
1. Record revenue and growth
2. Record low churn
3. 84% growth
4. Recently increased guidance
5. Expansion into UK in '04; Canada in '05
6. Continued positive cash flow
7. Record short interest
Execution and performance show the company executes; somehow, the shorts never state this fact.
Finally, I find that there are a few issues where the shorts actually hurt themselves piling in. To be honest, most are lemmings, not professionals. AMZN, YHOO and EBAY are examples where so many piled in believing the innuendo that they ensured a floor on the issue. Heavy short interest to me only means limited downside. TASR is the most recent example of shorts piling into a stock with low float "knowing" they were right. They may have been right about the business but they sure guaranteed themselves a no win result.
The short interest in NFLX float makes it a more appealing long trade to me than short.
JB |
