Good article on NFLX

[Guest HarryLong]

Now is the time to short Netflix. It's way way overvalued. And the quietness on this thread confirms that...

 

I'm not against anyone going short a stock. I'm against them doing it with open-ended risk.

[DCG]

Now is the time to short Netflix. It's way way overvalued. And the quietness on this thread confirms that...

 

People have been saying that since the stock was around $60.

 

I don't own any NFLX and agree it seems quite overvalued on a P/E basis. I think it's potential as a takeover target makes it a difficult stock to short. Companies like Apple, Google, Microsoft etc would love to have their business. If the stock got low enough, I think they'd see an offer.

 

That said, I do think companies like Apple could replicate Netflix's service for far less than $10 Billion (NFLX's current market cap) without taking on all Netflix's physical distribution centers.

[Guest Bronco]

I would be shocked if Apple would buy Netflix.  I don't think this is a good buy for any company.

 

But it is crazy to short these stocks that are groundbreaking.  They are overvalued on a historic P/E basis, but no one really knows how much they can make in the future.  Same is true with a CRM. 

 

But why invest in a NFLX when LVLT is such a value play?  Sketchers anyone?

 

[Guest ValueCarl]

Bronco, your use of the words, "ground breaking" on top of the board host emphasizing "critical mass" is most appropriate and enlightening when you point the to underlying "network owner," versus Netflix's more beholden model, which if you're keeping up with the news headlines, is finding solace in (3) fighting their battles for them. This is a great battle for (3), as finally, this issue of "free peering" is going to be addressed swiftly, and (3)'s conservative $25B in "ground breaking," multiple pipe installations for blowing crucial "fiber" into them during the past thirteen years of technology enhanced "network building," will pay off since "critical mass" has now become real. Without a doubt, it's tied to video and bringing our "eyes" into the communications experience.

 

On the other hand, pay no attention to that stock price, and the silly charlatan behind the curtain making its market in it.  :-X

 

I see that Canadian Rogers Communications company, not unlike Comcast and others in the U.S., are intent on becoming "content" owners in addition to communication links. Ultimately, I believe the "stupid network" wins, as long as the internet remains free, and costs to deliver desired consumer and business "content" as well as "costs to receive" are the primary factors for determining "transmission prices."   

 

http://www.hollywoodreporter.com/news/rogers-talks-purchase-toronto-pro-55185

 

   

 

 

[Guest HarryLong]

Harry - a few points

 

First, congratulations - you won over a 3 month period.  It looks like you exited your position as well, so you have a realized gain.

 

However, we will see what netflix does over the next 5 years.  My position is more based upon the competitive environment Netflix will encounter over the next few years, not subs they are adding today.  Prem was wrong on his CDS bets and down 75%+ over 4+ years before making 10x on his money.

 

Finally, position sizing is a valid form of risk control.  I started with a position that was a fraction of 1% of capital and averaged in as the price rose.  I have allowed the short to grow, and now have converted it to solely 2012 put spreads so that losses are limited.  You cannot argue position sizing is not a valid form of risk control.

 

I can argue that position sizing is an unwise form of risk control quite easily.

 

To quote you: "I'm bruised up on this one.  Short since 110.  Been adding to the short along the way.  Started just with puts, now shorting outright."

 

If you had kept on just the outright short, your position size has almost doubled.

[watsa_is_a_randian_hero]

Harry - a few points

 

First, congratulations - you won over a 3 month period.  It looks like you exited your position as well, so you have a realized gain.

 

However, we will see what netflix does over the next 5 years.  My position is more based upon the competitive environment Netflix will encounter over the next few years, not subs they are adding today.  Prem was wrong on his CDS bets and down 75%+ over 4+ years before making 10x on his money.

 

Finally, position sizing is a valid form of risk control.  I started with a position that was a fraction of 1% of capital and averaged in as the price rose.  I have allowed the short to grow, and now have converted it to solely 2012 put spreads so that losses are limited.  You cannot argue position sizing is not a valid form of risk control.

 

I can argue that position sizing is an unwise form of risk control quite easily.

 

To quote you: "I'm bruised up on this one.  Short since 110.  Been adding to the short along the way.  Started just with puts, now shorting outright."

 

If you had kept on just the outright short, your position size has almost doubled.

 

see my post on your "risk control" thread.

 

I maintain position sizing is a valid form of risk control.  If a short grows beyond a comfortable size of portfolio (x%), you cover a portion of it. 

 

The Netflix position is not something I have lost any sleep over, as I have always kept it below a threshold level as a % of the portfolio.

[Guest HarryLong]

Harry - a few points

 

First, congratulations - you won over a 3 month period.  It looks like you exited your position as well, so you have a realized gain.

 

However, we will see what netflix does over the next 5 years.  My position is more based upon the competitive environment Netflix will encounter over the next few years, not subs they are adding today.  Prem was wrong on his CDS bets and down 75%+ over 4+ years before making 10x on his money.

 

Finally, position sizing is a valid form of risk control.  I started with a position that was a fraction of 1% of capital and averaged in as the price rose.  I have allowed the short to grow, and now have converted it to solely 2012 put spreads so that losses are limited.  You cannot argue position sizing is not a valid form of risk control.

 

I can argue that position sizing is an unwise form of risk control quite easily.

 

To quote you: "I'm bruised up on this one.  Short since 110.  Been adding to the short along the way.  Started just with puts, now shorting outright."

 

If you had kept on just the outright short, your position size has almost doubled.

 

see my post on your "risk control" thread.

 

I maintain position sizing is a valid form of risk control.  If a short grows beyond a comfortable size of portfolio (x%), you cover a portion of it. 

 

The Netflix position is not something I have lost any sleep over, as I have always kept it below a threshold level as a % of the portfolio.

 

You're right, I probably do lose more sleep over your "risk control" than you do.

[DCG]

But why invest in a NFLX when LVLT is such a value play?  Sketchers anyone?

 

 

Not to derail this thread, but i still have a hard time understanding how LVLT is a 'value play'. The company makes no profit and has a ton of debt. There will be plenty of time to buy the stock if they ever figure out how to actually make money.

[Guest Bronco]

DCG - I was kidding.  LVLT is a dog.  With fleas.  Lots of fleas. 

 

I just don't get how that can be the best investment idea out of a universe of ideas.  Not for me.

 

I am too busy losing money in Loews to invest in garbage like that.

 

 

[Guest Bronco]

I know there is a lot of single men on this board, playboys if you will, that are too busy chasing women to step back and think about the other side.  Well let me clue you in...

 

My family (meaning my wife) is buying anything that can stream Netflix into our house...Blu Rays, Apple TV...you name it.

 

Is it b/c she loves me so much she wants me to be able to access the Godgather and Good Fellas whenever I want?  Good guess...uh no. 

 

It is simply the best way to entertain kids...huge library of kid stuff that may keep the monsters from climbing the walls for just 2 minutes.  And if you don't think this will be a big market...guess again.

 

Not long the stock but just a couple of cents....

[merkhet]

 

I don't own any NFLX and agree it seems quite overvalued on a P/E basis. I think it's potential as a takeover target makes it a difficult stock to short. Companies like Apple, Google, Microsoft etc would love to have their business. If the stock got low enough, I think they'd see an offer.

 

That said, I do think companies like Apple could replicate Netflix's service for far less than $10 Billion (NFLX's current market cap) without taking on all Netflix's physical distribution centers.

 

 

Aside from the already discussed 100% upside and unlimited downside angle on shorts, this is probably the primary reason not to short Netflix.  I seriously considered it at $170/share, but there's just no telling what a bunch of tech companies flush with cash will decide to do...

[Alekbaylee]

Some more good news for Netflix

 

http://ca.finance.yahoo.com/news/Netflix-signs-licensing-capress-1088722820.html?x=0

[Eric50]

In depth analysis of NFLX from Whitney Tilson and why he is short. By far the best analysis I've seen so far. Lots of things might happen in 2011; it's going to be a very interesting year.

 

Eric

 

http://seekingalpha.com/article/242320-whitney-tilson-why-were-short-netflix

[rkbabang]

In depth analysis of NFLX from Whitney Tilson and why he is short.

 

Netflix CEO Reed Hastings Responds to Whitney Tilson: Cover Your Short Position. Now.

 

"I have to agree with my friend Whitney that there are many risks ahead for Netflix, that our valuation is substantial, and that it is possible that one could make money shorting Netflix today. But shorting a market leading firm as it is driving a huge new market is a very gutsy call."

 

--Eric

 

[biaggio]

http://seekingalpha.com/article/243850-sears-kmart-to-launch-netflix-competitor?source=hp_latest_articles

 

"Sears, Kmart to Launch Netflix Competitor...

 

 

A number of Sears’ competitors including Walmart (WMT) have already started to dabble in the online movies space. Walmart recently bought Vudu, a service that streams movies to internet-connected TVs. BestBuy teamed up with Sonic to put its movie library in all of the Web-connected devices the company sells at its stores."

[stahleyp]

sears is facing netflix. Well, I can't say that I feel they'll compete at all. But, I don't think most people thought apple would be successful in smartphones before the iphone came out or Microsoft would be a success with its Xbox system. So...we'll see.

[biaggio]

sears is facing netflix. Well, I can't say that I feel they'll compete at all. But, I don't think most people thought apple would be successful in smartphones before the iphone came out or Microsoft would be a success with its Xbox system. So...we'll see.

 

Agree. But what would stop multiple other competitors? It would be hard to bet against Walmart, Target, Sear/Kmart, etc all going after same dollars...will there be any profit left?

[Guest Bronco]

Netflix will probably never justify the share price but why would I switch to a kmart product?

 

I can already stream Netflix to my iPad, iPhone, or tv. 

 

It would take either 1 better content or 2 cheaper prices for me to switch.

 

My guess is over time content providers will be agnostic to distributors and there will be little difference in price or content.  Which to me makes the cable companies (on demand) and netflix the long term winners.

[Eric50]

Adding more fuel to the NFLX fire, here is a good article on short-selling based on valuation.

 

http://seekingalpha.com/article/242595-a-response-to-netflix-short-sellers

[Myth465]

And the Saga continues. I have my popcorn ready.

[Guest HarryLong]

Experience keeps a dear school, but fools will learn in no other

--Franklin, Benjamin

 

Have you paid your tuition with your short yet?

 

Never give advice...

A wise man won't need it

A fool won't heed it.

 

--Unknown

 

 

--

To Review:

 

Phil Fisher's 15 Points:

 

1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years? A

 

2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited? A

 

3. How effective are the company's research-and-development efforts in relation to its size?

 

4. Does the company have an above-average sales organization?  expert merchandising.

 

5. Does the company have a worthwhile profit margin?

 

6. What is the company doing to maintain or improve profit margins?

 

7. Does the company have outstanding labor and personnel relations?

 

8. Does the company have outstanding executive relations?

 

9. Does the company have depth to its management?

 

10. How good are the company's cost analysis and accounting controls?

 

11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?

 

12. Does the company have a short-range or long-range outlook in regard to profits?

 

13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?

 

15. Does the company have a management of unquestionable integrity?

[Junto]

Article of Interest

 

Amazon Leaks Details About Their Netflix-Like Movie Subscription Service, Free For Prime Members

 

Not much news usually takes place on the weekend, but on Saturday afternoon, Engadget.com posted multiple screenshots of an Amazon page offering free unlimited streaming of movies and TV shows.

 

Amazon wording on the page said, "Your Amazon Prime membership now includes unlimited, commerical-free instant streaming of 5,000 movies and TV shows at no additional cost".

 

Shortly after it was reported, the Amazon user who found the page could no longer access it, but multiple screenshots at Engadget.com clearly shows the details and is the best proof yet that Amazon is getting ready to challenge Netflix with a subscription based streaming service.

 

Read more: http://www.businessinsider.com/amazon-leaks-details-about-their-netflix-like-movie-subscription-service-free-for-prime-members-2011-1#ixzz1Ca18GbVv

 

 

 

disclosure - I am short Netflix at $210.73

 

 

[Guest HarryLong]

Just to reiterate, I am not opposed to shorting any stock. I am just opposed to a lack of risk control as people (such as my former debate opponents on this thread) lose massive amounts % wise on a short and refuse to use risk control.

 

I think we have all seen the evidence for the use of strong risk control on this thread. Complex arguments to short were made, and certain proponents of those arguments found it very difficult to imagine a simple configuration of the world in which Netflix added subscribers while increasing profits.

 

At least those guys have stopped trying to carry the torch as the high priest arbiters of what is and is not value investing. Sometimes the conversation can get a bit religious, with different fanatics evangelizing for a certain dogma, excommunicating non-"adherents", casting out non-value demons, and generally basking in false piety.

 

;D

 

For my part, I am not here to worship at the altar of the Graham denomination, or the Fisher denomination, or the Buffett/Munger denomination. I am here to make money and innovate, while respecting the strong points of each.

 

I prefer to side with Galileo and the scientific method. Occasionally, I feel like we are engaging in a non-self conscious Dialogue Concerning the Two Chief World Systems (http://en.wikipedia.org/wiki/Dialogue_Concerning_the_Two_Chief_World_Systems) where I am forced to play Salviati, my opponents insist on acting out the role of Simplicio to perfection, and the kind readers of the thread are Sagredo.

 

Ironically, however, the Dialogue was not really, in the end, about heliocentric vs. geocentric cosmological views, but as we know, about evidence-based science vs. authority / tradition.

 

As Leonardo Da Vinci said, "He is a poor disciple who does not excel his master." Let's try to remember that in our attitude towards innovation and progress in value investing on this board.

 

 

[Junto]

Not sure, not interested in whatever that was Harry. I am also about making money. Honestly this is a short term short for me. I see a pull back to under $200 in the coming three months.

[Guest HarryLong]

Not sure, not interested in whatever that was Harry. I am also about making money. Honestly this is a short term short for me. I see a pull back to under $200 in the coming three months.

 

I can see the perfect corporate slogan for your firm now  ;D

 

"Risk control: We're Unconcerned."

 

 

And yes, making money starts and ends with risk control. I'm glad you can see the future in the coming three months (maybe you can, who knows?). If you're wrong, I hope you have a plan to get out.