Netflix (NFLX), whose shares peaked at $295 on July 2011, is still in search of a bottom. Shares could be giving a “head fake.” This means the market could be appearing to signal upside, but will then fall even lower.
Throughout 2012, shares found lower lows, an often negative sign that Netflix is bound to keep falling. Netflix began its descent after haphazardly unbundling its CD rental business from its online streaming one. Consumer backlash meant that customers unsubscribed to Netflix, choosing alternative companies like Coinstar (CSTR) or Amazon.com (AMZN) services. At the time, Netflix was also expanding its business outside of North America. Netflix was strategically calculating that it could grow customers globally to make up for the defection of customers in the U.S. The company eventually scaled back its global growth efforts, because customer growth was tepid, and global growth was expensive.
Netflix also has another challenge: buying original content cheaply. The company failed to finalize a contract with John Malone’s Liberty Media (LINTA) last year in September. This meant Netflix lost access to content from Sony Pictures (SNE) and Walt Disney Co. (DIS). Epix and A&E also followed Starz, further reducing the content available on Netflix.
The value of the Netflix business is in its recommendation engine. Its importance is much like that found on Amazon.com for books, music, and video. Netflix is scheduled to report third quarter earnings on October 23. The performance of Netflix stock against past earnings events is illustrated on the chart below (powered by Kapitall.com). This will help you decide on whether to take a position on Netflix now or to wait until after earnings:
Business Section: Investing Ideas
Companies mentioned in this article are:
1. Coinstar, Inc. (CSTR, Earnings, Analysts, Financials): Provides automated retail solutions primarily in the United States, Canada, Puerto Rico, the United Kingdom, and Ireland. Market cap at $1.4B, most recent closing price at $44.68.
3. Liberty Interactive, Inc. (LINTA, Earnings, Analysts, Financials): Engages in the live-action theatrical film production and distribution, home video distribution, live-action television production and distribution, and theatrical and non-theatrical animation businesses primarily in the United States. Market cap at $11.34B, most recent closing price at $18.95.
4. Sony Corporation (SNE, Earnings, Analysts, Financials): Designs, develops, manufactures, and sells electronic equipment, instruments, and devices for consumer, professional, and industrial markets worldwide. Market cap at $11.42B, most recent closing price at $11.37.
Written by Chris Lau. To interact and discuss these picks with users, attach your watch list or portfolio to your friends on Kapitall. Message the author. He is ranked sixth (by points) on the all-time leaderboard. The leaderboard is located on your score icon -> Leaderboard. Members on Kapitall earn free points, and even more points with every Kapitall Generation trade. These points may be redeemed for goods at the Kapitall store.
Analyze These Ideas: Getting Started
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Coinstar, Inc. (CSTR, Chart, Download SEC Filings)
- Amazon.com Inc. (AMZN, Chart, Download SEC Filings)
- Liberty Interactive, Inc. (LINTA, Chart, Download SEC Filings)
- Sony Corporation (SNE, Chart, Download SEC Filings)
- Walt Disney Co. (DIS, Chart, Download SEC Filings)
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