I am buying Netflix Stock at $60 a share, despite a rapid $20.11 a share drop in today’s trading session. The drop can attributed to a second quarter earnings report. Full disclosure, I actually bought a $70 call option expiring Jan 2014 for NFLX.
Why invest despite disappointing earnings?
- Netflix put up $.10 a share for it’s Q2 2012 earnings, which actually surpassed many analysts expectations.
- Total revenues increased 12.8% Year over Year to about $889 million. Growth in both domestic and international revenues
- Total subscribers increased by about 17% from the prior year
- Netflix could be on the verge of “taking over the world” when it comes to online television.
How can Netflix “take over the world.”
Netflix has a very unique opportunity, which is that the company has an early entry lead to the market. Most people realize that Netflix’s online service is a fraction of what it could be with more content. I currently am a Netflix subscriber, but I am finding it very hard to find quality content that interests me. I personally do not consider Netflix a good place to find good movies. Ultimately, the battle for content will decide the winner.
Netflix has the proven infrastructure, it just has to land the content to be king of it all. Could the content go somewhere else or at the very least be split amongst other providers? Of course, but if you were distributing a movie, Netflix is currently the best gig in town to make it happen.
The downsides to Netflix
The level of entry for competition isn’t as high as many make it out to be. Furthermore, Amazon and Apple already have loaded guns when it comes to distributed media.
I personally find the most un-easing thing about Netflix to be the management (CEO: Reed Hastings). When Netflix talked about splitting their online content from their dvd service into a new company called “Qwikster,” it scared me a lot. I understand that DVD delivery service isn’t the future, but it made me feel as if they have absolutely no idea what they have going for them right now. The name and early entry is one of their best assets. If they don’t see that, then something is terribly wrong.
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