A couple of suggestions. First, see a recent presentation by Netflix about the future of their own business, which includes the following chart: <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2874759> As you can see, their business is still growing, and will not start to decline for two or three more years. The complete presentation is available here: http://techcrunch.com/2010/06/03/netflix-business/ Second, go the Value Investors Club and see the analysis of Netflix from 2007, which was well done. As discussed therein, Netflix has several competitive advantages:
How about this Jim Chanos is currently shorting NetFlix and thinks that they are still delivering when they should be examining the wave of the future of straight digital delivery. they will soon be competing with the movie studios as well as the likes of hulu and amazon. Also blockbuster may be down and out but they have a formidable opponent in RedBox which offers $1.00 a day rentals that are convenient because they are located at McDonalds and grocery stores. Jim Chanos is the Warren buffett of short selling who got his name shorting an insurance company in the 80's and true notoriety with the ENRON call way before everybody else. (watch the smartest guys in the room quite comical) I can go on and on while I may not be as good as you analytically and just graduated last year and am a prop at a hedge fund down here in boca raton feel free to hit me up on facebook as I would love to discuss more instead of typing it here on the 4th of July. -Richart Ruddie
An idea might be sell upside calls on the underlying, while purchasing CDS for the longer term, so the trade finances itself. Given the moribund outlook for the Market over the next 6 mths, it seems like an easy trade. If the CDS are not liquid, then jan 11 95 puts look like a decent option to buy with the call money...
Or you could do a pairs trade here. Who are their potential competitors? Amazon definitely comes to mind. Amazon is streaming digital movies along with so many other areas they are experiencing growth. How about a Netflix short and an Amazon long? Or long Amazon with NFLX puts, or sell NFLX calls while buying Amazon calls...there are so many ways you could go with this.
Tell the hedge fund to abandon this value investing non-sense and buy a decent high-frequency trading firm that can collect the rebates or spread all day long on NFLX.
I picked up a copy of "financial shenanigans" 3rd edition the other day, and low and behold - PG. 220-224 discusses a peculiar accounting trick that Netflix uses to record the purchasing of inventory and how it is in contradiction to the statement of cash flows.... take a look, the book is well worth buying
OP: If you really, really want to make an impression with your new firm tell them that at the end of the presentation or rapport it does not matter what you or anybody else think about the investment to make. The only thing that matters is what you are going to do when you are in a position after the research. How to unwind an investment that is not producing or how to maximize a winning position is the only thing where there is control over. Al the research and idea's are just that. Research and idea's. It comes down to what you think will happen and when you take action on that, then you think you have some sort of control, while in reality you are playing a probability game that can go either way...
First, this probably isn't the best place to ask this type of question. With that as a preface, though, my best guess is that they are testing your quality of thought and how well you back-up your reasoning. It's probably best to go with what your analysis shows and try to be as convincing as possible with that. You also better have answers to every conceivable question they might ask.