Whitney Tilson on NetFlix: Beginning of the End


Whitney Tilson's lost a fair amount of money shorting Netflix Inc. (NASDAQ:NFLX), but he still thinks their pivot into streaming video is the "beginning of the end."  The company is moving into a new, bigger pond full of the "most powerful, aggressive and deep-pocketed companies in the world," he says.

Over the past 12 months Netflix Inc (NFLX) shares have traded between $48.52 and its 52-week high of $209.24.  Netflix shares are now trading with a P/E Ratio of 67.3 and EPS of 2.65.
NFLX shares are trading at $180.94, up 1.37% or $2.44 and its shares have come down 15.64% from its 52-week high.

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NFLX(WSJ.com) It’s no secret that money manager Whitney Tilson has been betting against Netflix. And he openly acknowledges that he’s “lost a lot of money” betting shorting the video service. But in a note out today, he’s sticking to the call. Despite the stock’s remarkable 230% increase year-to-date, the recently announced transformation to a streaming video firm represents the “beginning of the end” of its incredible run, he says.

We acknowledge that the company offers a useful, attractively-priced service to customers, is growing like wildfire, is very well managed, and has a strong balance sheet. So why on earth would we be betting against this stock? In short, because we think the valuation is extreme and that the rapid shift of its customers to streaming content (vs. mailing DVDs to customers) isn’t the beginning of an exciting, highly-profitable new world for Netflix, but rather the beginning of the end of its incredible run. In particular, we think margins will be severely compressed and growth will slow over the next year.

In a later section, he suggests that in the streaming video business, Netflix is just going to be outclassed by a new cadre of giant competitors.


SOURCE: http://blogs.wsj.com/marketbeat/2010/12/16/tilson-heres-why-we-bet-netfl...

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