Novice Investing - Netflix Growing Nicely Online

Date: Friday 29th 2008f August 2008 12:47:41 PM

Netflix Growing Nicely Online - 10/24/2007

By: Hari Wibowo

Back in August 2007, we viewed Netflix Inc. (NFLX) as a potential investment candidate. At the time, Netflix just experienced its first ever subscriber loss in its history. Investors sold off the stock to as low as $ 16.50 per share. With Netflix reporting its third quarter result, the table has turned. Netflix reported strong third quarter profit of $ 15.7 Million or 23 cents a share. In addition, Netflix reported 286,000 new subscribers during the quarter. Netflix also forecasts strong 500,000 new subscribers for the coming fourth quarter. While I believe that this is rather aggressive, Netflix has shown that it can dramatically turn around its business within three months. Therefore, we should give Netflix the benefit of the doubt here.

Armed with this ammunation, Netflix shares zoomed higher to $ 26.50 per share, way above its 52 week low reached three months ago.

Biggest direct competitors in the space is Blockbuster Inc. (BBI) which is now the second largest online rental providers. However, as we pointed out Blockbuster with its 33600 employees are at a disadvantage cost structure. Another viable competitor is Amazon.com (AMZN) 'unbox' plan which is a video downloading service. Netflix has been aware of this threat for quite sometime now and it has an instant PC download if you want to view it from your computers. But as this point, management points out that hybrid service of between video downloading and DVD rental is the way to go since each has its own merit.

With its solid net cash position (+ $ 6.00 per share ), Netflix is stronger than its competitors. We even believe that three months ago when Netflix was at a seemingly bad position. As always, companies with positive net cash and profitable operations will inevitable withstand any near term setbacks. Currently, Netflix shares unfortunately has risen significantly from its 52 week low. Therefore, we had missed our opportunity of owning Netflix 40% cheaer just three months ago.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Netflix Inc. (NFLX) or any other securities.

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