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rffrydr
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 Posted: Thu Apr 26, 2012 10:17 am Post subject: |
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Hey! Morningstar's got an itchy finger too, 
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HenryTo
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| Posted: Wed Apr 25, 2012 4:57 pm Post subject: |
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Morningstar on NFLX's 1Q earnings.
| Quote: | | Netflix's NFLX first-quarter results were decent but second-quarter guidance for domestic subscriber growth scared the market and stock plummeted in after-hours trading Monday evening. Our fair value of $80 per share is unchanged. Ignoring the head-fakes of the market has allowed us to make a 4-star call when the shares touched $61 and a 1-star call when the shares hit $125 over the past six months. Shares are now only slightly overvalued, though we are maintaining our negative long-term bias given the eventual pressure on domestic profitability due to more competition from entrenched content distributors like Comcast, which will allow more current and quality content to be streamed on devices like the iPad. We think the market is starting to catch on to this story over a year after we addressed it our competitive analysis. Our greatest concern now, which we pointed out in our October earnings note, is the strategy of taking cash generated in the United States and investing in international expansion where Netflix has no competitive advantage and is starting from scratch. While we've stood by our $80 fair value estimate, we acknowledge that a wide range of potential outcomes for the stock in the long run, and if management gets too aggressive on international expansion and takes its current domestic competitive position for granted, we are more likely to see a downside case emerge. Fourth quarter of $870 million was up 21% over the year-ago quarter, however, the overall operating margin declined to 0% from 14% due to continued international investment and higher content costs. Cash outlays for streaming content increased to $765 million from $192 million in the year-ago quarter, but was lower than the $977 million cash outlay in the December quarter. We expect margins to remain depressed through 2012 (relative to the 12% posted in 2011) given the company's desire for international growth, which remains unprofitable. |
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HenryTo
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tybaron92
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Joined: 14 Jan 2012
Posts: 1
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| Posted: Sat Jan 14, 2012 9:05 am Post subject: NFLX |
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| with the already huge bounce NFLX had could it still have more? |
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rffrydr
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Joined: 30 Oct 2005
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Location: Sunny California
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| Posted: Mon Jan 09, 2012 5:10 pm Post subject: |
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| rffrydr wrote: | From one of the Boards:
| Quote: | | A note on Netflix. They forced customers in our area, Wisconsin,to renew the contract with the new terms. (At least we were, I went thru process) When you go in to the renewal process on line with PS3, the first thing I saw was "Do you want to cancel?". I am guessing that had a lot to do with cancellations. Its easy to cancel and punish Netflix to only later renew as a new account with a free month.? There is not an apples to apples competitor that I am aware of so I don't see competition as the reason for the decline. Also, I sense they have an issue with their accounting. |
This is probably right. It characterizes this new interwebbed generation. Stop/Start on a mouse click. Wall St. going to be behind again. There really is NO competition here for anyone seriously into movies. Blockbuster maybe...but then, look at that brand.
Probably a good buy here for a year horizon...but not my cup of tea in any case. |
Number one in 2012, up 43%....alas the Casandra curse on this one! Better to not have owned than owned one lot?!
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HenryTo
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rffrydr
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| Posted: Mon Oct 31, 2011 8:55 am Post subject: |
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One of the top "Buying on Weakness" stocks today.
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rffrydr
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| Posted: Thu Oct 27, 2011 7:56 am Post subject: |
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From one of the Boards:
| Quote: | | A note on Netflix. They forced customers in our area, Wisconsin,to renew the contract with the new terms. (At least we were, I went thru process) When you go in to the renewal process on line with PS3, the first thing I saw was "Do you want to cancel?". I am guessing that had a lot to do with cancellations. Its easy to cancel and punish Netflix to only later renew as a new account with a free month.? There is not an apples to apples competitor that I am aware of so I don't see competition as the reason for the decline. Also, I sense they have an issue with their accounting. |
This is probably right. It characterizes this new interwebbed generation. Stop/Start on a mouse click. Wall St. going to be behind again. There really is NO competition here for anyone seriously into movies. Blockbuster maybe...but then, look at that brand.
Probably a good buy here for a year horizon...but not my cup of tea in any case.
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HenryTo
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| Posted: Tue Oct 25, 2011 3:59 pm Post subject: |
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Morningstar on NFLX:
| Quote: | | Netflix NFLX reported poor third-quarter results, and its outlook was even worse than we anticipated. We believe this is self-inflicted, a reflection of poor management decisions as well as our long-standing viewpoint that the company has no economic moat. Netflix lost more than 800,000 subscribers during the quarter, and management indicated that the first two quarters of 2012 could have overall operating losses because of international expansion in the United Kingdom and Ireland. We anticipate making a material reduction to our fair value estimate and plan to publish a more detailed note and updated report Tuesday. |
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HenryTo
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| Posted: Wed Oct 12, 2011 1:07 am Post subject: |
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Morningstar's latest comments on NFLX:
| Quote: | | Netflix NFLX announced Monday that it had changed its mind about formally splitting the company into separate businesses for DVDs (Qwikster) and streaming (Netflix) with distinct websites and billing systems. We labeled this as a panic move at the time, and that description appears to have been accurate. Our $150 per share fair value remains the same and we think the shares are slightly undervalued after the recent huge price decline, but we'd require a large margin of safety before recommending the shares. We think some of these short-term headline-grabbing issues take the spotlight away from the fact that Netflix lacks an e conomic moat and faces several long-term challenges. John Wooden, the legendary basketball coach at UCLA, had a famous saying, "Be quick, but don't hurry." In a brief press release, CEO Reed Hastings touched on the same theme, saying, "There is a difference between moving quickly, which Netflix has done well for years, and moving too fast, which is what we did in this case." We've never really understood the company's decision to demarcate the DVD and streaming businesses in the first place. There is room to invest in the streaming business and use DVDs to keep customers satisfied at the same time. We think the July price increase was necessary to help Netflix invest more in streaming, but it was a mistake to not offer a discounted price to customers taking both DVDs and streaming. The company had a competitive advantage in the DVD rental business, but as we've stated repeatedly, streaming is a whole different ballgame as deep-pocked competitors like Amazon AMZN, Apple AAPL, and Google GOOG are viable threats. We think the company's best strategy would be to use the combined streaming and DVD offering as a comprehensive plan. While the streaming content is limited, customers could use the deep library from the DVD service to fill the void. While waiting for a DVD in the mail, customers could satisfy instantaneous demand with online viewing. Aside from the recent moves that upset its customers more than it expected, the recent Starz announcement about ending negotiations for streaming Disney DIS and Sony SNE movies demonstrates the negotiating power of content firms and that movie content will get much more expensive. Netflix chose to spin the news as a decision to remain disciplined about content costs, which flies in the face of the high prices the firm has paid for old TV content within the last year. We also think Netflix will struggle to acquire fresh and high-quality content as the current pay-TV ecosystem has a lock on this programming. Competition is looming from pay-TV distributors and cash-rich technology firms. If Netflix's lofty subscriber growth is predicated on streaming content still being in the "early innings," then the competitive landscape should be viewed in the same manner. We split the competition into two buckets: (1) the existing pay-TV distributors and (2) cash-rich tech companies. For example, Apple's cash balance is more than 20 times Netflix's projected 2011 sales. Although Netflix may have some first-mover advantages with its streaming platform, there are few switching costs and we believe pay-TV distributors and cash-rich technology companies are in a better position to license quality content over a longer horizon. |
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rffrydr
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| Posted: Mon Oct 10, 2011 7:49 am Post subject: |
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Ha ha ha....let's all laugh at Netflix...biggest marketing fiasco since New Coke.
Let's forget the single auto-destruct moment that caused this, $300/share. Yes, the stock price drove management to "create" value that wasn't there in the first place. Indeed it was that very price, a price that dwarfed the content providers, that choked off the pipeline. It also drove Netflix to become its own content provider. That this is happening in a depression while Hollywood retreats to its focus groups gives it a chance in hell of pulling off. But watch for some big stumbles here too.
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HenryTo
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| Posted: Tue Sep 20, 2011 10:36 pm Post subject: |
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Morningstar's latest comments on NFLX:
| Quote: | Netflix's Letter to Customers Is a Panic Move
Netflix NFLX sent a letter to customers Monday, announcing a formal split of the DVD and streaming video business. At first glance, this seems like a panic move by the company. The DVD business will be named Qwikster and have a separate website; customers who receive both DVDs and streaming will get two separate bills. The Qwikster service will also have a subscription tier that allows customers to access video game titles in addition to video content. By highlighting the two separate charges on credit card statements, ironically, more subscribers could opt to drop the plan that delivers the least value. We continue to believe the shares are overvalued, but much less than before their sharp price decline last week.
We've never really understood the company's decision to demarcate the DVD and streaming business in the first place. There is room to invest in the streaming business and use DVDs to keep customers satisfied at the same time. We think the July price increase was necessary to help Netflix invest more in the streaming business, but it was a mistake to not offer a discounted price to customers taking both DVDs and streaming. The company had a competitive advantage in the DVD rental business, but as we've stated repeatedly, streaming is a whole different ballgame, as deep-pocketed competitors like Amazon AMZN, Apple AAPL, and Google GOOG are viable threats. We think the company's best strategy would be to use the combined streaming and DVD offering as a comprehensive plan for customers. While the streaming content offering is limited, customers could use the deep library from the DVD service to fill the void. While waiting for a DVD in the mail, customers could satisfy instantaneous demand with online viewing.
On the video game side, the market for subscriptions has never taken off, as the leading industry player, GameFly, only commands about half a million subscribers, and Blockbuster has had limited success establishing a large presence within this market. In the past, Netflix management has commented about the difficulties of creating a video game subscription service and has dismissed its potential entrance into this market, so we find it curious that the firm would choose to enter now, given the impending impact of digital distribution and increased competition in this market (Amazon, Best Buy BBY, and Wal-Mart WMT have all made various inroads into the video game market recently). |
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HenryTo
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| Posted: Fri Sep 16, 2011 12:48 pm Post subject: |
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Morningstar's latest on NFLX:
| Quote: | The transition to digital delivery levels the playing field for Netflix's competitors.
It has been a rough month for Netflix NFLX. First, Starz disclosed that it was ending discussions with Netflix about extending the licensing agreement for Sony and Disney movies. On Thursday, Netflix lowered its U.S. subscriber guidance for the third quarter. The company now expects to have 24 million subscribers (prior guidance of 25 million) with 9.8 million streaming only (versus 10 million), 2.2 million DVD only (versus 3 million), and 12 million customers taking both (unchanged). Clearly, management underestimated the near-term impact of its price increase, which is hitting customer accounts this month. We're maintaining our $150 per share fair value estimate and believe the shares remain overvalued even after Thursday's expected stock price decline.
We think the recent price increase will generate a near-term bump to average revenue per user (ARPU), but that the company is overestimating the value proposition in the long run. We think it's safe to say that the most content-hungry consumers already are subscribers to Netflix, so we view each incremental subscriber as being less content-hungry, frugal, or both. It is difficult to measure the impact of "missed" subscribers, but we think the price increase will cost the company some incremental subscribers.
We view Netflix as a high-expectations stock that faces heightened competition on the horizon, challenges in accessing high-quality TV content, and higher costs of streaming movie content. The company lacks an economic moat, especially as the firm transitions from DVDs to streaming. Content owners hold the upper hand as evidenced by shorter-term licensing deals that allow them to consistently re-price content. We think investors should consider other media companies, such as Disney DIS and Time Warner TWX, that have economic moats and are trading at more than 25% discounts to our fair value estimates. |
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HenryTo
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| Posted: Fri Sep 02, 2011 1:00 pm Post subject: |
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Morningstar on the Starz negotiations:
| Quote: | | Starz issued a press release Thursday that disclosed it is ending discussions with Netflix NFLX about renewing the streaming content deal for Disney and Sony movies. The current deal does not end until February 2012, so we think Starz is wisely flexing its negotiating position. Starz hit Netflix with the public announcement on the first day of September, the month that Netflix's price increase (announced in July) takes place. We believe Starz has the leverage in this negotiation, and this dispute is an example of why we don't assign an economic moat to Netflix. Content owners hold the upper hand, as evidenced by the ability to sign shorter licensing deals that allow them to consistently reprice content. We?re maintaining our $150 fair value estimate for Netflix and think the optimism currently priced into the shares does not account for the heightened competition on the horizon, lack of access to high-quality television content, and higher future costs of movie content. Starz has rights to Disney and Sony films (about 28% of domestic box office sales in 2010), and these are the best streaming movie options available to Netflix subscribers. Most of the streaming rights for other major studio content is locked up for several years. Time Warner TWX management previously disclosed that its HBO unit has digital and pay TV rights to Warner Brothers, Fox, NBC Universal, and DreamWorks Animation DWA (about 50% of domestic box office sales in 2010) through the middle of this decade. We had expected Netflix to pay at least 10 times more ($300 million) than the current agreement which has been widely estimated at only $30 million per year. Obviously, Starz undervalued the content when it first licensed the streaming rights in 2008, when Netflix had only 9 million subscribers (versus about 25 million currently). We think Netflix will have to pay up for exclusivity, and we would not be surprised if Starz demands some kind of variable compensation in addition to a fixed annual cost. It is still possible that Netflix eventually gets the Starz content, but it will cost much more than it anticipated and it may not get exclusive rights, with several cash-rich and larger firms like Amazon AMZN, Apple AAPL, and Google GOOG on the horizon as potential bidders. |
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HenryTo
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