10/26/11

Shareholders beg Netflix to: "Turn It Off!"

Netflix (NFLX) got into content recently, at least proverbially, in producing a horror flick that's got its shareholders begging management to "turn it off"!

Many of you who own shares already know, and those 20+ million of you with a Netflix subscription will find out (if you haven't already) that the company arbitrarily split its two service types (its conventional DVD's by mail, and its new and expanding bank of movies and shows available by streaming) which were both sold for a combined $9.99 and backed them down to $7.99 each, or $15.98 total.  While not a devastatingly significant amount of money for those who actively use the service, the arbitrary and ham-fisted methods used were resented by even the most rabid Netflix Evangalists.

These price hikes were not without consequence either.  However, I thought it worth mentioning that this stock is now trading at $77.  It was $300 just this last July! 

Barf Indeed!


So post-bloodbath the contrarian in me is immediately interested.  I've always been attracted to this kind of panic selling and understanding the underlying story driving this type of capitulation.  This isn't to say I believe there'll be an immediate sharp rebound in the company's stock price, but whenever there's an abrupt rush to a limited number of exits, you're typically dealing with a glut of especially "weak hands" willing to sell at nearly any price. 

The stock was priced to perfection, but now however, considering its 40% year-over-year top-line growth and what appears to be a new emphasis on bottom-line directed from the top (in perhaps the most inept fashion I've seen from a company with the kind of good-faith Netflix has in a long time!) this company is looking to be an speculative play worthy of a second look by those with strong stomachs.

Of course, if I were to intent on building a position in Amazon, I wouldn't do so right away, but instead would "leg in", and buy in thirds over the next couple of months or so while the realities of the recent panic are digested, and the actual performance dynamic of the company in this all-important holiday season are better understood.

As a parting thought, I was fortunate enough to have Marc Randolph, co-founder of Netflix, serve on the board of directors of one of my businesses for a couple of years, and in that time I routinely found myself left slack-jawed by his brilliance!  He'd occasionally drop the answer to a complex problem...not an idea or clue that might get us to the answer...the whole thing w/ a bow on it!   I count Marc among the most naturally gifted businessmen I've ever had the pleasure of working with.  Now I don't know Reed Hastings, but from what I'm told he's running that place with similar cognitive firepower...so, these guys, while clearly not immune to mistakes, are some really smart SOB's with a damn good track record and a over 20 million subscribers in a high-growth industry!  The company is certainly worthy of a closer look...  

Christian Hunter
Austin, Texas