Thursday, February 10, 2011

Netflix (NFLX) and the Stupid Federal Reserve

By deliberately talking up the market over the past six months, Uncle Ben has chased all the shorts out of the market.

Whitney Tilson - who was a noted NFLX bear - has capitulated and covered his NFLX short. He says that new information has made him question his thesis, but I think the real reason was that he couldn't take the pain any longer.

The bearish case on Netflix has nothing to do with whether the company is growing quickly or how happy the customers are, which are Tilson's two main points. The bearish case is about whether NFLX is going to be able to get streaming content for the same sweet prices it is currently enjoying.

Bernanke's irresponsible statements about the equity markets have brought the markets to a fall-2007 state of delusional euphoria. Shorting "doesn't work" anymore so why bother?

A market crash where there are no shorts left to cover is going to be ugly. Wait and see.

13 comments:

Eric said...

A market crash where there are no shorts left to cover is going to be ugly. Wait and see.

I guess shorts eventually cover. But I would not normally think about short covering when the market is falling. Unless some kind of support level was reached. Which can be hard to determine in a "crash".

"Bottom line – the intraday pullbacks continue to be aggressively bought and sector rotations suggest that sidelined money still desperately wants in and is looking for any weakness, no matter how slight, to put money to work. That can’t continue forever, but for now, the bulls have control and are running over anyone in their path...we will get a far better opportunity down the road with much better risk/reward setups, but for now we have to trade the market we have, not the market we want.

whydibuy said...

Good afternoon idiots of the apocalypse.

Oh, look, the market is crash.....oh, wait, its rising, lol.

Hey, didn't some chart idiot tells that a plunge was imminent? Something about the employment report would trigger a sharp selloff?
Another chart idiot making a chart reading that doesn't pan out. What a surprise.

Of course there is the resident blogger idiot bad mouthing Tillson about NFLX. And forgetting about his badmouthing NFLX.....and claiming to have covered before the ramp. I guess he doesn't believe his own BS.
ONWARD AND UPWARD WE GO!!!!!!

LangoneRedStudyGroup said...

He capitulated, absolutely. But I can't say I think it's the wrong call. I certainly agree with his idea that there are better shorts out there. Barry Ritholtz's post a few weeks ago about reasons to short was spot on: Valuation alone is an awful reason to short in the absense of a catalyst.

Regarding NFLX's valuation, I'd be a whole lot more bearish on NFLX if I believed they had no pricing power. I believe they do, and it may be substantial. Most NFLX subscribers I know are gaga about the service - this is a sample of about a half dozen, so take it with a grain of salt. It's $7.95 a month. Do we really think they'd lose half their subscribers if they went to $12.95 month? I don't think they would - considering my cable company seems to up my rates more than $5 every year.

PS, good to seeWhydibuy's comments here are as useless and devoid of insight as they are over at TBP.

CP said...

Sure, there are better shorts, which we talk about on this blog all the time.

The point of the NFLX parable is: there are no more bears.

Also, this blog gets an amusing amount of traffic from searches for NFLX. That is clearly retail rubes who are convinced it is the next sure thing because, hey, they get the red envelope in their mailbox.

Netflix is dominated by its streaming content providers. I haven't heard a good response to that, which is the most important part of the bearish thesis.

LangoneRedStudyGroup said...

CP,

Agreed there are no more bears. But there aren't many bears on Google or Apple either. To me, this isn't a great short qualification.

Couldn't you say that about most cable providers? Surely DirectTV - which, by the way, has 3x a market cap of NFLX, thought they have close to the same number of subscribers.

I have no doubt they're going to have to pay up for Starz later this year. I'm also guessing their growth rate will tail off at the end of this year - something most retail longs don't expect. I can't imagine how many more people that would use Netflix don't have it yet. But to have a distribution platform with 30MM subscribers is valuable. And if you re-run NFLX's numbers with $13 instead of $8 for their service, the valuation doesn't look quite as nosebleed.

Personally, I wouldn't touch this stock with a 10 foot pole. But I think it's an awful short.

getyourselfconnected said...

Added this site to the blogroll, great work here. Friday night post up in a bit.

CP said...

LRSG,

Thanks for your comments - I think you have good insights on NFLX.

I'm not so sure about the pricing power. Haven't they noticed that the subscription numbers are pretty elastic with respect to price?

LangoneRedStudyGroup said...

CP,

I'm not sure. I think the service has changed enough from a movies-by-mail service to a cheapo-cable-replacement service that I'm not sure any numbers Netflix might have internally on this even apply anymore.

But here's how I look at it: I have 3 TV's in my house, 2 bedrooms + downstairs, all HD, no premium channels, plus high speed internet, and my bill is $150 a month. I live with a roommate, so the bill gets split in half, so $75 is palatible for me, but frankly, I really am not home that much and don't watch that much TV.

If I lived alone, I would probably get an antenna to pick up HDTV broadcast, and get rid of the cable TV altogether, and for the $8 a month possibly pick up Netflix. As a substitute for a $100+ service, I would think that most NFLX consumers wouldn't be that price sensative, but I'm not sure.

Netflix is up $15 today on no news. I wouldn't short this, even here, but I'd really like to know who is buying at these levels. I really want to see what happens the first quarter the subscriber numbers slow. It has to be close to saturated at this point.

The other thing I want to see is the Starz renewal. NFLX said it doesn't need Starz, but I think it does. People keep assuming it will be resigned at a price "comparible" to the Epix deal - I wouldn't be so sure about that. If I were Starz, I'd be going for a lot more than that.

Chris

whydibuy said...

What a lovely sight.

Shorts getting their balls handed to them on a platter. Or should I say mailed to them NFLX style,lol.

No doubt our resident NFLX badmouther covered his short after telling everyone how overpriced it was.

And wheres Tom Demark who stated that on Jan 19, he was very sure that within 2 weeks the market would be in a sharp descent. Thats what his magic charts said.
Well, Tommy, where is this sharp correction? Did you bet your money with your magic charts or just tell everyone else to sell? And cost them more gains like CB does daily.
Silly, silly fools. Greater the fools that listen to them.

LangoneRedStudyGroup said...

whydibuy, Thank you again for providing no insight or analysis whatsoever, as usual.

whydibuy said...

Hey red, thanks for opening your mouth and giving us no insights whatsoever.

But perhaps no insights are better than constantly wrong insights. Or do you just enjoy being mislead to losses or missed opportunities in perpetuity?

Now go thank Tommy D for his chart crash insight, you know, the one that didn't happen as usual.

LangoneRedStudyGroup said...

whydibuy,

I thought I remembered your handle from TBP, it's actual from Jeff Matthews blog. Google brought up a conversation in '05 with you ( http://jeffmatthewsisnotmakingthisup.blogspot.com/2005/08/hurricane-katrinas-sobering-math.html ) when you were sure everything was great in the world and the rise in gas prices were no big deal. Couple of questions for you:

1)Exactly how much money did you lose in 08-09?
2) Have you ever been not been bullish?
3) Since I think the answer to 2 is "no", is there anything that could make you not bullish?

Eric said...

whydibuy, Thank you again for providing no insight or analysis whatsoever, as usual.

He's obnoxious and comes as close to defining 'troll' as anyone I've ever seen. My advice is to ignore him.

Question: What "insight or analysis" of value has CP provided on NFLX?

As far as I can tell, here is his first post on NFLX. It's dated April 1, 2010. Of course he's been consistently rather bearish on NFLX. On April 1, 2010, NFLX closed at 75. Yesterday's close was 247.55.