Lights Out Netflix? Facebook (And Its 600 Million Users) Enters "Zero Barriers To Entry" Video Streaming MarketSubmitted by Tyler Durden on 03/08/2011 08:51 -0500
Has anyone seen the latest Whitney Tilson NFLX reshort memo? Because if the news that Facebook and its 600 million registered users is entering the video streaming market is true, and it appears to be, the "value inventor" should promptly forget that he topticked the market with his short cover a few weeks back, swallow his pride and actually make money. As for Netflix, the world's most ridiculous zero barriers to entry business model is about to realize why most SWOT analyses typically at least cast a casual glance at said barriers to entry. Because when there are none, you can go from hero to zero in a like amount of time. All Things Digital reports: "The social media giant is taking its first step to connect you with
movies and TV shows, while collecting a fee in the process. It’s going
to let users rent movies directly from the site, using Facebook Credits
to pay for the transaction. First up is “The Dark Knight”, from Time Warner’s Warner Bros.. It will
cost 30 credits, or $3, for a 48-hour rental, via an app the studio has
built for the site. More movies, along with the ability to purchase the
titles outright, are coming." And so, the race to the bottom in Netflix margins begins. Next up: we repeat our prediction that NFLX will be forced to come to market with an equity offering, which will promptly cut the value of the world's most overpriced stock by at least 33%.
it's not just the Federal Reserve that is in denial but the commodity speculators, the equity investors and even the bond investors as the ALL believe they are going to get paid while MATH says that's not even remotely possible.
While it is not surprising that the Swiss Franc is surging almost as much as silver in today's flight to safety episode, and even "value investor" Whitney Tilson is rumored to be shorting Netflix again after topticking his cover with immaculate perfection, what is a little disturbing is that the dollar has plunged to the lowest levels since February 3. The reason, of course, is that with global unrest spreading like Molotov cocktail fire, and implied US GDP plunging by 5% in the past week on the hike in oil prices, it is becoming very evident that the recovery myth is now over, despite claims by the NAR charlatans, and another round of quantitative easing is almost inevitable. What that means for the dollar is precisely what one can see on the chart below. As for the use of funds in the upcoming QE episode, perhaps the Fed can instruct the Primary Dealers to go out and buy some WTI this time instead of just crowding into Apple and REITs...
"In mid-December, we published a lengthy article on why Netflix was our largest bearish bet at the time. With the stock up nearly 25% since then, one might assume that we’d think it’s an even better short today, but in fact we have closed out our position because we are no longer confident that our investment thesis is correct." Whitney Tilson
Is it just remotely possible, that 50% of the people in the United States of America can't possibly afford to live in Bullish Projection America and that the growth that is priced into the markets is, perhaps, overly optimistic?
Despite new claims for unemployment putting up the largest weekly increase since September 2005...
The market keeps rolling because retail sales missed expectations, ratings agencies...
Whitney Tilson, the consummate "value investor" is the latest confirmation of what we have been claiming since the beginning of 2010: namely that with the Fed's intervention in capital markets, those who plan on making money using a gold old fashioned long-short, 130/30 portfolio distribution, value trading are in the bullseye of central planning. What has happened over the past year, when courtesy of the Chairman's endless market manipulation, is that the worst of the worst stocks, those traditionally shorted by all, the 5x beta crapshoots, were the ones the screamed higher, with State Street and BoNY making it impossible to hold shorts in anything, not to mention repo desks calling in borrow on a daily basis, and killed traditional fundamental analysis, where good companies are purchased, and bad ones are shorted. Congratulations Bernanke: with your reckless destruction of prudent capital allocation decisions, you will put every single "value investors" out of business. Which is why we feel for Whitney, who despite his seemingly constant appearance on CNBC at one point talking his book, returned just 10% net for his fund, compared to the S&P which did about 50% better. Hopefully the redemption requests leave something in their wake. On the other hand, like every single self-respecting asset manager, Tilson blamed the bulk of his underperformance on Netflix. Of course, he is absolutely right: the company is worth exactly nothing, but it will likely take a few years for the momo crew to figure it out. By then, all shorts in the name will be but a memory.
The market crept up again today like Jessica Simpson's pants or like Pete Townshend at...
The theater of the macabre goes one further following the just released response by Whitney Tilson to this morning's attempted rebuke of the short Netflix thesis by Reed Hasting. StreetInsider cites Tilson, who told the breaking news site the following: ""I'm glad Reed Hastings took the time to reply to some of the issues we raised. He made a number of good points and helped us -- and other investors -- understand him and his company better. I think a friendly, respectful debate like this is healthy and wish there was more of it." We are now holding our breath until we get Reed's response to this follow up response, to his original response, over just how overvalued his company is. Ironically, we don't really see what the reason for this theatrical acrimony is: after all it is pretty obvious that both Hastings (and the firm's CFO prior to his surprising resignation recently) and Tilson are on the same side of the trade.
In what is rapidly becoming a mockery of the investing process, after Netflix recently advised shorts to cover during their investor call, the firm's desperation has hit a new all time low. Today NFLX CEO, Reed Hasting, has responded directly to ongoing attacks by Whitney Tilson that his company is due for a major correction, by posting in financial website Seeking Alpha. Hastings' stunning conclusion: " Whitney lays out a series of potential issues for us: Our CFO’s
recent resignation; threats to the First Sale doctrine for DVDs;
Internet bandwidth costs potentially increasing; declining FCF
conversion; market saturation; weak streaming content; paying more for
streaming content; and increased competition hurting margins. He only
has to be right on one or two of these issues in 2011 for him to make
money on his short of Netflix. Odds are he is wrong on all of them, in my view. Let’s take them one at a time." And while Tilson has indeed suffered major losses so far on this short, we are very confident that his perseverance will pay off. As we noted previously, the major concern facing Netflix is not so much margins (which is a major concern), but cash flow generation. As such, we continue to view the probability of a follow on offering by the company to be very high, as the firm already issued high yield bonds recently and has very little dry powder left under the "indebtedness incurrence" basket. In the meantime, we can all enjoy the spectacle that is NFLX' defense of its ludicrous 100x+ fwd P/E position.
Oh shit, it is on again like white on rice, stink on shit, and Black on Scholes (and for you quants, just know that Brownian motion has more than one meaning), as a flurry of blue chip companies beat earnings guesses and pushed the market higher. With the 50 day moving average now rising above the 200 day moving average the S&P has hit the fabled Golden Cross (which is kind of like the Hindenburg Omen only less fiery, with fewer McClellan Oscillators, and the exact opposite), which means technicians are expecting to be showered with returns.
Our research on Interoil (IOC) leads us to believe there may be a lot of skeletons in its closet, making it a top choice for our next bearish position.
"Sometimes the cheapest situations are the ones that everyone agrees are cheap, but there's no catalyst. We think cheapness is its own catalyst and if you can be patient, sometimes for a year or two, you'll be rewarded. Our patience and the investor base we built that allows us to be patient is a big advantage."
Whitney Tilson was up 3.5% in July, surprisingly not beating the market's 7% rip, even with his well publicized BP position (cost basis of $29). Tilson's notable movers: "On the long side, winners of note included BP (up 33.2%), Goldman Sachs (14.9%), Resource America (13.0%), American Express (12.4%), AB InBev (10.5%), CIT (7.4%), and General Growth Properties (5.0%), slightly offset by Berkshire Hathaway (-2.5%). On the short side, we profited handsomely from VistaPrint (-30.4%) and Gentiva Health Services (-23.6%), but these gains were more than offset by losses on MBIA (up 54.7%) and InterOil (35.1%)." Additionally, Tilson shares an in depth thesis of his three favorite stocks: AB InBev, Microsoft and BP.