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Whitney Tilson: Why We Covered Our Netflix Short

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Re: Whitney Tilson: Why We Covered Our Netflix Short

#31

Post by chime »

underdown wrote: post #13

Sounds like Hastings charmed them. I'm a Netflix streaming subscriber and even though it's so cheap - I'm considering canceling because they don't bring enough new content online for me to get value from the service.

My wife and I use Netflix differently than you. Netflix is not what's new but what's good. And over the past year we have discovered that there is a lot of good content on Netflix, you just have to change your viewing habits. We don't look for a movie released last year. We look for a sci-fi movie with a time-travel theme or a comedy show about evil corporatations. Also, I highly recommend instantwatcher.com to find good stuff to watch.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#32

Post by SoftwareMaven »

trotsky wrote: post #27
SoftwareMaven wrote: post #18

Earlier quoted context omitted.

Probably a general problem. They (of course, depends on the network) use the DNS system to determine "where" you are to provide a node closer to you. However, you probably will only notice it on things like video where latency can make such a large difference.

While that's generally true for basic CDN backed services like image fills from akamai, DNS geolocation isn't the norm for more complex applications. Netflix specifically doesn't use dns to push you to a specific pop, you first talk to a set of central authentication/drm servers who in addition to giving you your ticket/key also direct you to the video CDN POP they choose for you. The fact that Apple TV made the news…

And yet when I switched from OpenDNS to my ISP's DNS, I consistently went from marginal quality to almost always HD.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#33

Post by nrao123 »

3am wrote: post #25
scotch_drinker wrote: post #7

I think the most important part of the article is the quote at then end saying that just because they aren't interested in buying it doesn't make it a good short. The market can stay irrational longer than you can stay solvent and all that. 75x trailing earnings in the current economic environments SEEMS expensive to me. I'd be willing to bet (but not with real money) that it will be cheaper in 12 months. Of course,…

If you assume 30% growth for 5 years, dropping to 8% after that with a discount rate of 11%, then the $3 EPS implies a price target of $260. DCF derived targets imply some crazy valuations in high growth situations... That said I wouldn't buy NFLX either. But I wouldn't want to be short when 1/3 of the float is. If AMZN buys them out that would be the mother of all squeezes.

A substantial part of your $260 valuation Comes from Terminal Value (I.e. Post 5 yrs) And a 8% perpetual growth rate is an extremely aggressive rate.

Basically, to justify the current value, The 5 year CAGR has to be way, way higher than 30%

Re: Whitney Tilson: Why We Covered Our Netflix Short

#34

Post by CamperBob »

chime wrote: post #31
underdown wrote: post #13

Sounds like Hastings charmed them. I'm a Netflix streaming subscriber and even though it's so cheap - I'm considering canceling because they don't bring enough new content online for me to get value from the service.

My wife and I use Netflix differently than you. Netflix is not what's new but what's good. And over the past year we have discovered that there is a lot of good content on Netflix, you just have to change your viewing habits. We don't look for a movie released last year. We look for a sci-fi movie with a time-travel theme or a comedy show about evil corporatations. Also, I highly recommend instantwatcher.com to find…

Netflix is not what's new but what's good.

Exactly. It's like the early days of DVD -- you had people whining and moaning about the lack of Star Wars or Titanic, when there were already more great films in release than you'd ever have time to watch. Netflix streaming works the same way -- you can't turn on the TV with the intent of watching a specific Hollywood A-list movie, but if you turn on the TV with the intent of watching something good, you will not be disappointed.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#35

Post by paul9290 »

I recently became a subscriber and even if it does not have the latest movies i dont care because like Pandora it learns what you like and thus the recommendations are great. Another thing I love about it is the random DC comic cartoon/movies Ive watched like Batman/Superman and Superman and Shazam.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#36

Post by wallflower »

jdp23 wrote: post #2

Here was Reed Hastings' response to their bearish recommendation in December: http://seekingalpha.com/article/242653-netflix-ceo-reed-hast...

> Streaming adoption will likely follow the classic S curve, and we’re still on the first part (acceleration) of the S curve. Since we expanded into streaming, Netflix net subscriber additions have been 1.9m in 2008, 2.9m in 2009, and over 7m this year (estimated). While saturation will happen eventually, given the recent huge acceleration of our business specifically, and streaming generally, saturation seems unlikely to hit in the short term.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#37

Post by [deleted] »

jordanb wrote: post #26
scotch_drinker wrote: post #7

I think the most important part of the article is the quote at then end saying that just because they aren't interested in buying it doesn't make it a good short. The market can stay irrational longer than you can stay solvent and all that. 75x trailing earnings in the current economic environments SEEMS expensive to me. I'd be willing to bet (but not with real money) that it will be cheaper in 12 months. Of course,…

This is one of the most important things that those "if you're so sure Apple/Gold/etc is overvalued why don't you short it?" people ignore. Maintaining a short position is expensive . And even if you can afford it, holding it for too long can kill any upside you get when it finally does collapse. I can say that Gold is overvalued but I won't short it, and be perfectly consistent in saying that, because I admit that I…

[deleted]

Re: Whitney Tilson: Why We Covered Our Netflix Short

#38

Post by Qz »

ryanmolden wrote: post #21
brown9-2 wrote: post #10

Earlier quoted context omitted.

But without Netflix, how valuable is their content?

They seem to have survived pre-NetFlix, and there are Netflix alternatives...so I would say 'pretty valuable'.

Blockbuster also 'survived' pre-Netflix and look where they are now.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#39

Post by 3am »

nrao123 wrote: post #33
3am wrote: post #25

Earlier quoted context omitted.

If you assume 30% growth for 5 years, dropping to 8% after that with a discount rate of 11%, then the $3 EPS implies a price target of $260. DCF derived targets imply some crazy valuations in high growth situations... That said I wouldn't buy NFLX either. But I wouldn't want to be short when 1/3 of the float is. If AMZN buys them out that would be the mother of all squeezes.

A substantial part of your $260 valuation Comes from Terminal Value (I.e. Post 5 yrs) And a 8% perpetual growth rate is an extremely aggressive rate. Basically, to justify the current value, The 5 year CAGR has to be way, way higher than 30%

You're right of course - I really wanted to demonstrate that P/E ratios are a function of future growth and that a stock with a very high P/E can be underpriced.

I still know some people that think a company with a $4 share price is 'cheap' regardless of earnings, cash flow, or book value (and conversely, that high price stocks like AAPL or GOOG are 'expensive'). Not saying that is the case here, but there are plenty of people that make a similar mistake comparing P/E without considering growth rates.

Yes, I know low P/E strategies do well, and margins of safety, danger or trying to model growth rates more than a couple years out... but I'm not trying to turn HN into an investing forum :)

Thank you for calling me out on that!

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