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By: haggers Wed, 26 Oct 2011 11:50:05 +0000 Netflix doesn’t own content, and it doesn’t own the means by which content is delivered. All they own is a series of rights contracts, a website, and a few interesting algorithms for suggesting content to users. There’s no moat. Owners of content can deliver it themselves on the web without Netflix, if they choose. Owners of the delivery method (cable companies, telecom companies) can offer the content bundled with their existing packages, if they choose. Long-term, if it is profitable, they will.

By: y2kurtus Wed, 26 Oct 2011 03:00:57 +0000 NFLX’s problem is that they think exclusive content is valuable. It’s not… it’s just expensive. If Sony makes a movie to distribute to thearters, DVD, and cable TV and NFLX wants a 30 day exclusive window then they need to pay up bigtime for that content and their customers must bear that high cost.

Don’t make me pay more so that someone else can’t view something. Make me pay as little as possible and still give me access. That’s the value of NFLX…

You can get any best selling book at Walmart, Target, Amazon, Barns & Noble, or any local bookstore. Nothing is gained by the publisher or the consumer by saying ok now we’re only going to distribute through 1 channel for a 30 day window.

If NFLX just keeps offering 10,000 hours of quality streaming content in a dozen different catagories for $9/month they will continue to grow their customer base at an exponential rate for years to come… the Dreamworks deal was foolishly overpriced… hell while the shares were over $250 they should have just bought Dreamworks outright in a stock transaction.

By: djiddish98 Wed, 26 Oct 2011 02:02:47 +0000 “Or, more accurately, the stock dynamics became entrenched within Netflix’s corporate fundamentals. The deals I wrote about yesterday — like paying $30 million per movie for the right to stream DreamWorks’s animated films months after they’re available on DVD — were cheap when they were essentially being paid for with bubblicious Netflix equity. Indeed, insfoar as they caused the stock price to rise, they had negative cost to Netflix: the more deals like this that Netflix did, the more valuable Netflix became.”

I don’t quite follow this….did Netflix pay Dreamworks in stock?

How does the yo-yo stock price affect Netflix’s underlying business operations?

By: JohnFlowers Wed, 26 Oct 2011 01:57:49 +0000 I may be talking about my ass here, but…

Say tomorrow someone invented streaming hamburgers. And, say, the next day McDonald’s assured the market that it understood “changing times” and would corner the world of streaming hamburgers the way it had cornered the world of the non-streaming variety.

The market would bust a nut.

“Naturally,” says the market, “let’s throw money as this massive venture. McDonald’s understands and dominates the world of non-streaming fast food better than anyone else. In fact, it’s not just the non-streaming hamburgers itself but the non-streaming delivery of those burgers it gets. From top-down, here is one of the few companies that ‘gets it’ in a [reference Steve Jobs somewhere in there] changing world.

“Therefore, let’s follow it, lemming-over-fist, as it builds up its non-streaming side. And let’s forget that massive piles of debt are piling up like so many napkins when we eat the McRib. And let’s forget that, unlike non-streaming hamburgers, McDonald’s doesn’t actually own streaming hamburgers (yet, by the rules of accounting, those contracts are counted as an asset).

“We know this non-streaming hamburger business is happening. We know that only McDonald’s has the experience and know-how to make it happen. Let’s do this thing and build our confidence upon this House of Wrappers.”

And then, after years of an echo chamber of confidence dominating this discussion, the execs announce a plan that chases customers away, reminds the market of all that debt piling up and wakes people up to the fact that, really, no one needs McDonald’s for streaming hamburgers… yeah, the stock suffers a bit.

By: KenG_CA Tue, 25 Oct 2011 22:12:40 +0000 skyman, the comparison to Apple is not valid. At its peak, NFLX was trading at about 75x earnings. Apple is trading at less than 15x earnings. Maybe you should have picked Amazon, which was trading at over 100x earnings, until they announced earnings today.

Given that Apple is priced lower than the average growth stock, the possibility of their growth leveling off or crashing has already been priced into their stock.

disclosure: I own Apple stock. I’ve been saying for the last 3 or 4 years I’m going to sell it soon, but their competition is so incompetent, I can’t come up with a good reason to do that.

By: skyman123 Tue, 25 Oct 2011 19:36:42 +0000 And what other companies fit this picture? Hmmmm Apple perhaps? Is Apple worth half a trillion dollars according to the stock price? Really? I wonder what will happen the second Apple’s tablet sales start to hit the skids, or iPhone saturation is reached and people start going to “the next big thing”?

Short of the century if you have the timing down? ;)

By: jbernar Tue, 25 Oct 2011 19:03:00 +0000 “The standard view of stock markets is that they’re some kind of objective collective judgment on the fundamental outlook of a company. ”

Um, Felix, could we agree that you will never use this phrase again? It’s been disproven in so many cases during the last, oh, millennium that it’s no longer useful, even as a rhetorical foil. (“But now we see that, quelle surprise (hat tip YS), stock bubbles do occur!”)

Of course “rational expectation” is always correct ex post facto — once we’ve figured out what the fundamentals actually were. It keeps us sane — and hopeful — and allows us to make the same mistake in the future, sans peur et sans reproche (hat tip CdB).