Wednesday, June 23, 2010

Bookkeeping: Beginning Position in Netflix (NFLX)

While caution on the market in current state, I will continue to maneuver the portfolio a bit in case I am wrong.  Netflix (NFLX) will be the 2nd name to the wing of the portfolio known as names where valuation does not matter.  (NFLX comes in at a salty 45x forward estimates)  Due to the current set up of the overall market, I'll start with a modest position of roughly 0.75% exposure as the stock is currently bouncing a bit off a pullback to the 20 day moving average.  A move down to the 50 day moving average would be more appealing as a place to make a larger purchase.

In terms of relative strength one can see that even during the worst of the May selloff the stock did not puncture the 50 day.  When assessing risk, this one is obvious - while a good fundamental story, valuation is immense and its crowded with 'fast money' types.  Any earnings hiccup and this type of stock is down 20% instantly.

Fundamentally, I thought Apple would move to compete with Netflix using their iTunes store as a platform for movies but instead it appears they are working together.
  • Netflix CEO Reed Hastings took the stage at the Apple  developers conference to announce that he and Steve Jobs are bringing Netflix to the iPhone. 
  • ....which confirms how far the movie distribution company has moved past its DVD-by-mail roots. Netflix's iPhone app will be free, though to access streaming video you have to be a Netflix subscriber.

I don't think iPhone will be that huge of an application for Netflix, but iPad could be the key.  But more important than either is that Apple is not attacking Netflix directly.

The other obvious threat is video on demand from cable and satellite providers but I assume the vast library Netflix has will keep them in the game with their core customers.

Long Netflix in fund; no personal position


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