This Day On The Street
Continue to site
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

Netflix Probably Should Be Bankrupt, Stock Closer To Zero

NEW YORK ( TheStreet) -- For competitive reasons, I like to pick on Seeking Alpha, but I have to give credit where it's due. J Mintzmyer wrote an excellent article claiming that " Netflix (NFLX - Get Report) Narrowly Avoided Doom In 2013."

While I disagree with his view of (AMZN - Get Report), I'm on board with pretty much everything else, particularly:
[Netflix's] latest [sleight] of hand is the move to explore taking advantage of the current low interest rate environment, while stating [it] has sufficient cash on hand to fund expenses. This is not true. In fact, if Netflix had not issued additional debt, there is a strong likelihood of financial disaster in 2013.
This same argument was used last time Netflix sought financing in late 2011, but this time around, people seem to fully believe the argument. Ironically, Hastings' spin is more misleading than in 2011.

On Netflix's $500 million debt deal, Mintzmyer nails it again:
The debt deal by itself makes sense. The bond markets are starved for yield and Netflix needs the cash. I'm not decrying the offering; my point is that this isn't a Microsoft (MSFT - Get Report) or Intel (INTC - Get Report) type of advantage play -- this cash was needed to ensure operations, and Netflix is extremely lucky to receive it.

Bingo. Those three paragraphs sum up the Netflix story.

The second I read about the company's plans to "raise additional cash through new debt financing" in its Q4 shareholder letter, I called B.S. And if you check point No. 4 at the very end of this article from Jan. 17, you'll see that I called it before it happened.

I can't pat myself on the back too hard though. If you have even a weak understanding of Netflix's business and its inherently broken model, you, like Mintzmyer, realize Reed Hastings cannot move forward with content acquisition as usual, original programming production and international expansion without a cash infusion. I've been through the numbers a million times since I started calling Netflix out two years ago and, trust me, it's simply not possible.

To think that a fine publication such as Gentleman's Quarterly could mislead its readers as it did in a recent article about Netflix is unfortunate. GQ called Netflix "a cash-rich company." Even Hastings has to chuckle when he reads crap like that.

But you can't blame GQ. They're not hip to the game. They don't follow the company like we do. We cannot expect a writer at GQ to read between the lines and sniff out the pure and unadulterated hogwash that pollutes this paragraph from the above-cited Q4 letter to shareholders:
As highlighted previously, we have sufficient cash on hand to fund our current slate of originals and ongoing expenses, and to maintain an adequate reserve, before returning to positive FCF. 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.

Hastings is quite an explorer. He makes Magellan look weak. Within days of this exploration -- you know just to take "advantage of the current low interest rate environment" -- Netflix hit the market for a $400 million ... wait ... no ... check that ... $500 million debt deal. Here's an extra $100 million among friends.

Yes, Netflix absolutely needs that money. Badly. Even desperately. Without it, Mintzmyer is correct; short of another bailout, Netflix would have had to, sooner rather than later, cease operations.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AMZN $659.59 0.00%
INTC $30.28 0.00%
MSFT $49.87 0.00%
NFLX $90.03 0.00%
AAPL $93.74 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs