Beginning Position in Netflix (NFLX)

While caution on the market in current state, I will continue to maneuver the portfolio a bit in case I am wrong. Netflix (NFLX) will be the 2nd name to the wing of the portfolio known as names where valuation does not matter. (NFLX comes in at a salty 45x forward estimates) Due to the current set up of the overall market, I’ll start with a modest position of roughly 0.75% exposure as the stock is currently bouncing a bit off a pullback to the 20 day moving average. A move down to the 50 day moving average would be more appealing as a place to make a larger purchase.

In terms of relative strength one can see that even during the worst of the May selloff the stock did not puncture the 50 day. When assessing risk, this one is obvious – while a good fundamental story, valuation is immense and its crowded with ‘fast money’ types. Any earnings hiccup and this type of stock is down 20% instantly.

Fundamentally, I thought Apple would move to compete with Netflix using their iTunes store as a platform for movies but instead it appears they are working together.

  • Netflix CEO Reed Hastings took the stage at the Apple developers conference to announce that he and Steve Jobs are bringing Netflix to the iPhone.
  • ….which confirms how far the movie distribution company has moved past its DVD-by-mail roots. Netflix’s iPhone app will be free, though to access streaming video you have to be a Netflix subscriber.

I don’t think iPhone will be that huge of an application for Netflix, but iPad could be the key.

The other obvious threat is video on demand from cable and satellite providers but I assume the vast library Netflix has will keep them in the game with their core customers.

Disclosure: Long Netflix in fund; no personal position

About Mark Hanna 543 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

Follow Mark on Twitter @fundmyfund.

Visit: Market Montage

1 Comment on Beginning Position in Netflix (NFLX)

  1. Millions of families share access to the free streaming features on multiple devices in their homes. Kids access it at friends houses and at college through ps3’s and xbox’s and wii’s and now millions of iPhone, iPod touches and ipads. They will control video like Apple did audio. As the ol’ saying goes ‘if ya can’t beat em, join em’. Apple will sell more devices that have access to these services that have been incredibly well implemented.

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