Ignore his free and easy tongue at your own peril. Just like in 2011 when Wall Street analysts touted NFLX stock only to scatter and hide as it crashed. We're seeing the same sort of dynamic play out in 2013.
While I remain bullish NFLX stock (I have learned to not fight irrational, momentum-driven trends), I outline part of the bear case against the company in Microsoft (MSFT - Get Report) Should Not Buy Netflix.
Wednesday morning Jim Cramer shows why he's the boss and I'm the employee (Eddie Vedder once said that about Bruce Springsteen, so I can handle it!) in his retort, Why Shouldn't Microsoft Buy Netflix?I'm probably nuts for pressing my luck, but, in the next day or two, I will publish a response to Cramer's response. But, simply put, he's making this whole Microsoft living room thing more complicated than it needs to be. And, he's giving Hastings, who, without doubt, is a great visionary, too much credit as a businessman.
In any event, I have trouble seeing Hastings accept the prospects of losing control over his baby, but he might have no choice. That's the thing -- Netflix cannot survive without a bailout or additional cash infusions. And it would do well with new management (though Steve Ballmer would not be my choice). Hastings speaks, what he says fails to materialize and the world looks the other way. At your own peril (assuming you are not taking profits along NFLX's latest magic carpet ride). In July 2011, Reed Hastings told investors:
In Q4, we expect domestic net additions to return to a pattern of year-over-year growth while revenue will reflect a full quarter's impact of the pricing changes, which could result in Q4 being our first billion dollar global revenue quarter, driven by strong U.S. performance.
Never happened. Based on the company's Q1 2013 guidance, it might have happened in the most recent quarter. Eighteen months or so too late, but who's counting? I received an email from Richard Tullo, an analyst at Albert Fried, the other day. He knows Netflix more than most. And he points out what might be Hastings latest miss:
On the 4q conference Reed Hastings forecasted contribution margins from streaming would expand 100 basis points per quarter.
That was following the Disney (DIS - Get Report) Deal but after new deals for Turbo and the Killing were announced as well as many others.
We think as the Elite Class of originals which includes the Walking Dead, Downtown Abbey, Breaking Bad, The Bible, and Perhaps the Following are posting huge audiences AMC Networks (AMCX - Get Report), Time Warner (TWX), and News Corp's (NWSA) Fox will want more, much more than NFLX can pay and still offer robust Library content. The Irony is NFLX made the market and now they run the risk of being priced out of the market.
What's interesting to me is if an aggregator steps into the market, think Apple (AAPL), Intel (INTC), or Google (GOOG), then why wouldn't AMCX, Fox, or Time Warner be better off selling directly to the consumer. In every discussion I have had with Companies Intel seems to be a step ahead of me. Its early days but the future is always lead by disruption and either Apple, Intel or Google are positioned for disruption.
The brilliant thing JFK did was get the CCCP to develop liquid rockets before solid rockets. He did that with the race to the Moon. Liquid rockets turned into scuds and solid rockets turned into smart bombs and we won. House of Cards may be the Soyuz N1 brilliant but expensive and wrong.Netflix reports earnings on April 22. Love 'em or question their sanity and sincerity, Hastings and CFO David Wells always put on a great show. Follow @rocco_thestreet -- Written by Rocco Pendola in Santa Monica, Calif.
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