Sunday, April 19, 2015

Stock Talk - Netflix

Netflix stock sells for $571 a share, well over 100 times what analysts expect the Company to earn next year – and over triple what you could have bought it for two years ago.  The Company is valued at over $34 billion today, and some people believe it will go much higher in the coming months.

There’s a reason for that nosebleed-high valuation. Netflix is revolutionizing the way we watch television. It is run by a bona fide visionary, Reed Hastings, and it is growing by leaps and bounds, especially overseas. Every hour I stream a movie or TV series on Netflix is an hour I do not watch conventional TV – and on many evenings I don’t watch cable TV or the networks at all.  These are the evenings I settle back for a good movie like Shirley Valentine or The First Position or Quartet or an episode of two of a TV series, courtesy of Netflix. 

The old guard is aware of what’s happening. A few days ago Verizon announced that it will soon unbundle channels for its FIOS customers.  Comcast and Time-Warner Cable, which have been milking their bundles for years, see the writing on the wall. And there will be more revolutionaries to come, as companies like Amazon and Apple are not likely to let Netflix have the disruptive technology without competition.

Still, first movers have an edge, and Netflix is running fast. The Company’s catalog of movies and in-house miniseries is growing fast, and I marvel at how much Netflix’s “content” has grown in quantity and quality.

Still, the valuation is now very high by any standards. If you think Netflix will continue its march on the living rooms of the world, you may want to buy a few shares. But for conservative investors like this one, I will continue to watch from the sidelines

Thursday, April 02, 2015

Stock Talk - 8

This is the time when annual reports fill up your mailboxes. Almost all of them wind up in the waste basket without being read, the ballots along with them. This is a mistake. I say this not because I wrote more than 30 of them, but because they say so much about the company and its business, probably more of value than you will find anywhere else. Long gone are the days when the CEO simply boasted about being "well positioned for the future" - and little else. Today, the company lawyers and accountants sweat over every word, making sure that every syllable is accurate to a fault. We live in the age of transparency - and lawsuits.

So, the next time you receive an annual report, junk the ballot if you must, but read the President's letter, and read every word of what is said about the organizational changes, the competitive landscape, and especially the profit and loss statement and balance sheet, comparing them with the year-earlier numbers. If you have time, you might scan the biographies of the nominees for the directors, but these are not essential, nor are the compensation tables. The state of business is what you should be most interested in, and you should be able to get a clear picture of this with less than a hour's reading. It helps if the company is in a business you know something about (e.g., retail food or clothing).

If your portfolio is not worth an hour of your time, you should put your money in the bank or in good mutual funds, and leave the reading to professional analysts.