The Movie Rental Business:
Everyone remembers back in the day when people would drive to blockbuster or other small rental stores to rent the 3 month old "new releases". Well that era is over and Redbox and Netflix have come into play. My grandfather owns multiple movie stores in Lexington, Kentucky and the diminishing sales of these locations shows a huge change in the movie rental business. The business dramatically changed with the competition of these quick and easy boxes that are almost like soda machines. Netflix changed the industry forever with the creation of online rental streaming and sending rentals through the mail.
The Netflix Story:
It is hard for any specific company to catch up with new inventions in technology.
"Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5,500,000 shares of common stock at the price of US $15.00 per share. On June 14, 2002, the company sold an additional 825,000 shares of common stock at the same price. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning US $6.5 million profit on revenues of US $272 million."
While many of us had never heard of Netflix back then, they were preparing to change an industry that had been dominated by Blockbuster. There is no question that Netflix changed the market and was expected to continue its domination
A New York Times article from September 2002, said that, at the time, Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers. The company's published subscriber count increased from one million in the fourth quarter of 2002 to around 5.6 million at the end of the third quarter of 2006, to 14 million in March 2010
As of 2004, nearly two-thirds of U.S. homes had a DVD player.
The Last Years Debacle
On September 18, 2011, Netflix announced its intentions to rebrand and structure its DVD home media rental service as an independent subsidiary company called Qwikster, totally separating DVD rentals and streaming. Andy Rendich, a 12-year veteran of Netflix, would have been the CEO of Qwikster. The new service would carry video games whereas Netflix did not. Then, in October 2011, Netflix announced that it would retain its DVD service under the name Netflix and would not, in fact, create Qwikster for that purpose.
On October 24, 2011, Netflix announced it lost 800,000 US subscribers in the third quarter of 2011 and more subscriber losses were expected in the fourth quarter of 2011. Despite the losses, earnings for Netflix jumped 63 percent for the third quarter of 2011.
On January 26, 2012, Netflix said it added 610,000 subscribers in the US by the end of the fourth quarter of 2011. The company announced it had 24.4 million US subscribers for this time period.
NETFLIX AS AN INVESTMENT
From what I have gathered from the technology sector, it is very hard to determine the accurate price for companies like Netflix. Good examples of this are Ebay, Apple, Amazon, Mastercard, etc. It is hard to value a company that could be devastated by an invention that is greater than their products. Look at Blockbuster! But if we look at Netflix in a financial light, here are there statistics.
Price: 124.09
Market Cap: 6.85 Billion
P/E : 29.03
Profit Margin: 7.23%
Operating Margin: 12.02%
Return on Equity: 49.36%
Revenue: 3.2 Billion
Total Cash: 797.81 Million
Total Debt: 400 Million
Book Value Per Share: 11.70
Operating Cash Flow: 317.71 M
By the numbers Netflix looks appealing. They have a firm market share, they have a high ROE, and could pay off their debt with the cash that they have outstanding. The key to the Netflix investment is now somewhat speculative. Are Netflix customers going to quit using their products because of the major mistake by management. I tend to believe that management made a temporary mistake that everyone will forget about within a year. They still dominate an industry that has started to put up major barriers to entry. Yes you could put up a movie store in your town and try to get people to rent but why would they drive to your store when they can have them delivered to them via mail or internet. Yes, there are other companies that could jump into the market and try to build their own "Netflix" but they are few and far between. Amazon, Dish Network (they bought Blockbuster), and Google are some of the big names...and there are not many small names involved. Who else would have the money to sign a contract to obtain rights to the CW's streaming rights for 1 BILLION dollars with a B. Gossip girl must be really popular. Either way Netflix really flopped with their idea of a split and they lost many customers because of it, but in the end it seems as if the barriers to entry might be a little to high for other companies to really capitalize on there mistake. Netflix has a 52 week range of 62.37 to 304.79. The downside was hit by management's mistake but it has come back and could still go up
ME
I MISSED MY CHANCE. A lesson that I have learned while being in the business is that when you feel as if you found something and you bring it up to someone and they don't pay any attention...don't listen to what they have to say about that investment because they haven't taken the time to see what you see. I brought this investment up to a coworker when Netflix was less than 72 and he blurted out, "O, well I would rather buy Apple". Since then Netflix has been up 72% and Apple has been up 10.5%. Netflix has had some good fortune but Apple just finished an unbelievable record quarter with over $46 Billion in revenue and $13 Billion in net profit. Jump on your instincts because if you don't you will miss it, just make sure you're not missing something!
PS. I will use Wikipedia and Yahoo from time to time...I dont have all the time in the world!
From what I have gathered from the technology sector, it is very hard to determine the accurate price for companies like Netflix. Good examples of this are Ebay, Apple, Amazon, Mastercard, etc. It is hard to value a company that could be devastated by an invention that is greater than their products. Look at Blockbuster! But if we look at Netflix in a financial light, here are there statistics.
Price: 124.09
Market Cap: 6.85 Billion
P/E : 29.03
Profit Margin: 7.23%
Operating Margin: 12.02%
Return on Equity: 49.36%
Revenue: 3.2 Billion
Total Cash: 797.81 Million
Total Debt: 400 Million
Book Value Per Share: 11.70
Operating Cash Flow: 317.71 M
By the numbers Netflix looks appealing. They have a firm market share, they have a high ROE, and could pay off their debt with the cash that they have outstanding. The key to the Netflix investment is now somewhat speculative. Are Netflix customers going to quit using their products because of the major mistake by management. I tend to believe that management made a temporary mistake that everyone will forget about within a year. They still dominate an industry that has started to put up major barriers to entry. Yes you could put up a movie store in your town and try to get people to rent but why would they drive to your store when they can have them delivered to them via mail or internet. Yes, there are other companies that could jump into the market and try to build their own "Netflix" but they are few and far between. Amazon, Dish Network (they bought Blockbuster), and Google are some of the big names...and there are not many small names involved. Who else would have the money to sign a contract to obtain rights to the CW's streaming rights for 1 BILLION dollars with a B. Gossip girl must be really popular. Either way Netflix really flopped with their idea of a split and they lost many customers because of it, but in the end it seems as if the barriers to entry might be a little to high for other companies to really capitalize on there mistake. Netflix has a 52 week range of 62.37 to 304.79. The downside was hit by management's mistake but it has come back and could still go up
ME
I MISSED MY CHANCE. A lesson that I have learned while being in the business is that when you feel as if you found something and you bring it up to someone and they don't pay any attention...don't listen to what they have to say about that investment because they haven't taken the time to see what you see. I brought this investment up to a coworker when Netflix was less than 72 and he blurted out, "O, well I would rather buy Apple". Since then Netflix has been up 72% and Apple has been up 10.5%. Netflix has had some good fortune but Apple just finished an unbelievable record quarter with over $46 Billion in revenue and $13 Billion in net profit. Jump on your instincts because if you don't you will miss it, just make sure you're not missing something!
PS. I will use Wikipedia and Yahoo from time to time...I dont have all the time in the world!
No comments:
Post a Comment