I know many people here do not want to honestly admit to what is going on, but this is a discussion board for conversation about issues. In this forum, we do not simply ignore the facts. The facts is there is funny accounting going on at NFLX...the CFO resigned several months ago. We can only conclude that NFLX is at or near the point of bankruptcy due to very questionable accounting. My expectation is for a seekingalpha article to come out any day now to detail the goings-on at the corporation. I do not believe NFLX will be solvent in the next several months.
If you can only conclude this, why don't you write the article explaining why Netflix's accounting is fraudulent?
I'm actually surprised we haven't seen much upward action in NFLX this morning, considering the deal they just worked out with DreamWorks which sets off a few alarm bells in my mind.
I'm surprized by the lack of follow through as well. Dreamworks is just one of many content producers I guess. There are more than they will have to deal with and while I don't know the terms, my understanding is that this deal was not cheap for Netflix. I think the 100 strike puts are a compelling sale unlevered. To year end you can get 7.+% return to risk and an implied PE of 25 (which is a little growthish but not too much). I don't believe in the claims of fraud as the SEC has agreed to their accounting methods, though they are aggressive.
He could very well be right. I haven't followed the firm that closely but I do believe they were counting free trial subs as actual paying subs, much the way AOL did back in the day. Whatever the case, streaming movies is a very easy business model to copy. Nobody really wanted to compete with NFLX on the mail delivery model because it wasn't all that profitable and NFLX kinda had the corner with USPS. Now that movies in the mail is a thing of the past competitors want a piece of the pie. Perhaps it's just good old fashioned competition that will send the stock back to 20 bucks.
The OP only cites the CFO leaving as a reason for their to be accounting fraud. My understanding it had to do with the method they were amortizing their digital content. People did try to compete with them on the Mail DVD's but no one could replicate the logistics behind the scenes effectively. That was NFLX's edge. On the streaming side, you are right that this advantage is now moot. But Netflix has one big advantage. Their service is sold on virtually every piece of hardware that exists today. If you want Amazon streaming on your TV, you have to either buy a new device (doesn't exist really) or you need to wait for some firmware upgrade for your DVD player, wireless enabled TV, Playstation, etc. This makes using anything other than Netflix a pain and for most people.
Correct, BBI tried to compete with them but since NFLX was a first arriver (ala, eBay) they developed name recognition with mail delivery that BBI couldn't compete with, along with the logistics edge you mention. BBI had the "return to the store" advantage but they had to price the mail order so low it couldn't cover the cost of the brick and mortar overhead. It will only be a matter of time before competitors services are included on every piece of hardware that goes out the door. There was a time when Norton was the only virus software installed on a PC. Now there are many to choose from. The ISP's and the cable/satellite providers already have their foot in the NFLX door. NFLX doesn't have a competitive advantage anymore. Such is usually the case with most technology companies. I guess NFLX isn't a true tech company but the way they deliver their content falls into that category.
It's hard to become number one but it's much easier to stay number one. NFLX has that going for them. The Dreamworks deal brings in only kiddie content, maybe that's not very relevant to the bottom line.
Dubious accounting is one thing, insolvency quite another. Particularly given the amount of traffic and the probable profit margins (minus licsensing and aquisition costs). When it comes to pre-mature ejaculation, you don't need a rubber. Chaos clarity? Uh huh. Stock was run to $300, high as they could get it. It's now broke trend. That's about it.
If that happens then Netflix becomes an also ran in a world against better capitalized and entrenched players. I agree that this risk is very real for them. I also feel it's a longer term risk. In three years we will all still be watching Netflix or we will be watching something else. I don't like the hyperboles that the OP mentioned. It dilutes intelligent discussion.