I think you're right about shorting NFLX. The graphics show a lot of the reasons why I am short Netflix. Not to take anything away from the company and its fantastic model, but it is way too overpriced right now, and the growth expectations are entirely unrealistic. One of the most dangerous biases we have, is our tendency to worry about 'missing the boat' on great companies, leading investors to pay almost anything for the company. There have been so many examples of just amazing companies that have collapsed in value due to no error in management, but rather the frenzied investors who all want a piece of the pie at almost any price. Netflix is such a great company, but it is so far from the fundamentals, there is HUGE downsize potential; since there has been so much growth expectations priced into the company already, there is not much growth potential even if they became the standard for watching TV worldwide. They are already close to 70 million subscribers in the world, which is actually a much larger number than it appears because typically there is only one Netflix account per household (and some people often share with friends, etc.). That's a lot!
Now lets look at the fact there is nothing unique about what they are doing, they were just the ones to do it first in a big way. There's nothing stopping a company with way more money simply doing exactly what they are doing, eventually crushing Netflix. They have under 2 billion in equity, and could be crushed by Apple's enormous mounds of cash. If you saw the huge growth potential for pay streaming content a few years ago, you would have bought Netflix when it was quite reasonably priced; now there is almost no upside potential, and enormous downside potential. Netflix is another great example of a 2015 amazing company, at an absolutely ridiculous price. |
