This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Anti-Apple: Netflix to $300 by Summer

Stocks in this article: NFLX AAPL AMZN DIS

NEW YORK ( TheStreet) -- Here's all you need to know about Netflix (NFLX).

No. 1. The same flavor of irrationality -- Apple's Crash: A Wall Street Tragedy -- that drives Apple (AAPL) down will take NFLX back up to $300.

Go ahead and laugh. But before you do, realize I've called this thing every step of the way:

  • Netflix's Business Model Isn't Sustainable -- Seeking Alpha, April 5, 2011.

  • Prepare to Buy Netflix Before It Rises From the Dead -- TheStreet, July 30, 2012.

  • Netflix Will Hit $300, Go Out of Business or Both -- TheStreet, January 17, 2013.

    Timestamp it: NFLX will hit $300 by summer.

    Why? Because Reed Hastings has fired up the smoke-and-mirrors machine yet again.

    So, No. 2. Netflix has an excellent product. As somebody who covers the stock and subscribes to the service, there's no question the Netflix of 2013 is worlds better than the Netflix of 2011 from a content standpoint.

    As Reed Hastings explains in the company's Q42012 Letter to Shareholders, Netflix has found its content sweet spot. It owns KidsTV. It has become an excellent outlet for prior seasons of current television shows (e.g., "Mad Men"). It's about to roll the dice on original programming. And you'll be hard-pressed to find its most popular movies and television shows on competing services such as Hulu and Amazon (AMZN) Prime.

    That's all good, but it's simply not going to fly as a business at $8 per month.

    The "virtuous cycle" Hastings touts (more subscribers means more money for content, more money for content means more subscribers and so on) is actually a "vicious cycle." Always has been. That errant Disney (DIS) deal notwithstanding, content owners will not license premium content if Netflix continues to give it away, all you can eat, at $7.99 a month.

    Another tit-for-tat metric Hastings likes to brag about just went bust. He explained, quite transparently, in the above-linked communique to shareholders:

    In the past, we have managed our content licensing agreements such that cash payments in any quarter do not exceed 110% of the P&L expense (in other words, if our P&L expense was $200 million in the quarter, our cash payments for content would not exceed $220 million in the quarter). As we shared on our last earnings call, our original programming will require more up-front cash payments than most other content licensing agreements, raising this ratio (of cash to P&L for content) to as high as 120% in certain quarters with material originals payments. The bulk of our remaining cash payments for our current originals will be in Q1, driving FCF materially more negative than Q4, and then FCF will improve substantially in subsequent quarters.

    So free cash flow is plummeting. Spending continues to escalate. And cash is, once again, getting tight:
    In addition, we are exploring taking advantage of the current low interest rate environment to refinance our $200 million in outstanding notes and raise additional cash through new debt financing. This would give us additional reserves as well as increased flexibility to fund future originals.

    After Netflix raised cash at the end of 2011, it had $508 million in cash and cash equivalents. That was up from $160 million in the previous quarter. The big jump came because Netflix raised funds in a pair of dilutive financing deals. At the end of 2012, that cash number continued to trend lower, down to $290 million. (Data from Netflix Q42012 financial statements, available at the company's investor relations' Web site).

    1 of 2

    Select the service that is right for you!

    Action Alerts PLUS
    Try it NOW

    Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    • Weekly roundups
    TheStreet Quant Ratings
    Try it NOW
    Only $49.95/yr

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    • Upgrade/downgrade alerts
    Stocks Under $10
    Try it NOW

    David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    • Weekly roundups
    Dividend Stock Advisor
    Try it NOW

    Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Alerts when market news affect the portfolio
    • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
    Real Money Pro
    Try it NOW

    All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

    Product Features:
    • Real Money + Doug Kass Plus 15 more Wall Street Pros
    • Intraday commentary & news
    • Ultra-actionable trading ideas
    Options Profits
    Try it NOW

    Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • 100+ monthly options trading ideas
    • Actionable options commentary & news
    • Real-time trading community
    • Options TV
    To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
    Submit an article to us!


    DOW 17,356.87 +288.00 1.69%
    S&P 500 2,012.89 +40.15 2.04%
    NASDAQ 4,644.3120 +96.4780 2.12%

    Brokerage Partners

    Rates from

    • Mortgage
    • Credit Cards
    • Auto

    Free Newsletters from TheStreet

    My Subscriptions:

    After the Bell

    Before the Bell

    Booyah! Newsletter

    Midday Bell

    TheStreet Top 10 Stories

    Winners & Losers

    Register for Newsletters
    Top Rated Stocks Top Rated Funds Top Rated ETFs