Monthly Archives: December 2010

A Tale of two Companies: Netflix ($NFLX) and Blockbuster (BLOAQ)

Posted by Investing Freak on December 08, 2010
General / 5 Comments

If you are reading this blog that means you are part of the online revolution which has sped up the way we conduct business and also the way we spend our leisure time.
The recent years have brought user generated videos, tv episodes and even full movies to the web. Gone are the VHS and DVD days where it cost $6-7 to rent a movie and in are the $10-15/month to watch unlimited movies. The company that revolutionized this was Netflix a few years back and that caused dear ol’ brick and mortar Blockbuster to go belly-up.

Well Gentlemen and Ladies the beast is awakening from its two year sleep. In what might turn out to be a lengthy blog post I will be evaluating both Netflix and Blockbuster because in another week (December 15th) Blockbuster is expected to file its reorganization plan.

Lets start with Netflix $NFLX king which Since January 2010 alone is up a whopping 245% from $55 to $190 a share. Being a technical analysis freak I always look at the chart to see how the stock has done in the past and whether its shot up too far from the ground (my moving averages trio) and as you can see below the real ground is the 110 ema which right now stands at 151.37.  I also use two shorter term averages in case I don’t want to wait for a stock to go that low but with Netflix being $40+ above ground I am willing to wait. (Click Image to Enlarge)

Sure sure technicals are one thing but I also like to look under the hood at fundamentals. I plug balance sheet, income statement and other data into my system and what I get is an all in one visual of different ratios.  The profit margins have increased over the years and that is a positive thing but Netflix’s equity multiplier has increased from 1.78 to 3.41 which is basically doubled within the year and that signals to leveraging, all the profitability ratios are also good, but when we get to Liquidity ratios such as current and quick ratios we see a different story, Netflix has become more illiquid for better or worse. Lastly Long term debt to total assets has gone up significantly from 6% to 35% within a year so that might be a warning shot.  And Finally the past few day Netflix has been under the influence of mostly negative news and especially tonight’s after-hours news of its CFO  “retiring”.

Netflix receives a score of 57% (out of 100 of course) based on my hybrid system of technical analysis, fundamental and news and on we move into Blockbuster.

When was the last time you heard about Blockbuster? My educated guess would be around 2007 when they stopped advertising (started going belly-up). Well I do have some news for you and the news is that the Yellow and Blue logo is making a comeback but first lets keep the layout somewhat organized (neat freak) and start off with a chart.

Below is a chart using the exact averages as above but this one isn’t as pretty and Blockbuster (BLOAQ) former $BBI  has been “under ground” for quite some time. Even with the recent doubling of its price from 5 cents to 10 cents the ground hog hasn’t been able to stick its head above the 12 cent ground for long. Back in May the ground hog (Blockbuster) poked its head, didn’t see a shadow and that resulted in 6 more months of winter. So technically speaking, 12 cents has to be broken before the stock goes anywhere gooood. (Click Below to Enlarge)

Just because Blockbuster stock is yet to break out, that doesn’t mean that the company isn’t making steps into a re-emergence from bankruptcy. As mentioned in the beginning of this article Blockbuster should be submitting its plan on December 15th, meanwhile they have just closed 18 more physical stores in a move from offline to online media.  For those of you that like purchasing dvds at a physical location, NCR Corp operates RedBox-like kiosks with Blockbuster logo and movies. Tests on about 900 kiosks are being run now in San Francisco, Miami etc to see if people would pay $3.99 for the first night to rent a new movie 28 days before it comes out to Netflix. Going into bankruptcy it had $1 billion in debt and coming out it is expected to have $100 million or less.

Just a few weeks ago Blockbuster received court approval for $20 million in advertising, it had not advertised since 2007 and they have already begun with a few ads showing their competitive edge of providing movies 28 days earlier than Netflix the ad campaign is called “Less Waiting. More Watching.
Another thing i noticed  while looking website statistics and info is that when you search “new releases” on Google Blockbuster.com is #3 ranked and Netflix is #10.
Ok so why would I (or You) as a consumer want to pay $11.99/month for the 1 Dvd plan when Netflix is $9.99/month right now?
Well there is a big reason why I highlighted “right now” because it is the main reason Blockbuster is the only one to offer movies 28 days earlier since it costs $3.99/movie.

With Netflix’s recent fame in the stock market more companies such as the movie studios will want to suck more money out of them and they (Netflix) will pay higher prices for the movies. At this moment either Net profit margins will begin declining if the $9.99 price is still valid or Netflix will be forced to charge $10.99, 11.99 12.99 etc and that will drive users to other competitors since the price advantage is no longer valid.

With the new campaign, Blockbuster’s ad spending next month is to be three times as high as it was last December. The final month of the year is traditionally one of the most lucrative for the company, as summer event movies come out on DVD and families watch movies together over the holidays.

I will leave you with Blockbuster’s new ad campaign that came out less than a week ago.

What a crook I would be if I didn’t disclose my holdings. Short NFLX via option puts and long Blockbuster.

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Investimonials Inspiration for InvestingFreak

Posted by Investing Freak on December 06, 2010
General / Comments Off on Investimonials Inspiration for InvestingFreak

I would like to take a few short minutes to Thank all the Freak-y readers for their support.

You can check out Investingfreaks’ Investimonial page and leave a review for others to see so we can get more visibility.

There are currently two 5 star reviews and one email from a reader that found us through investimonials as well.

Here are what is being said about this blog.

Danny:  “funny, sharp, witty blog and really timely notifications”

the creator of this blog warned his subscribers to be extra careful a couple days before the flash crash! check it out. go to the website and go back to may 6th and before! its a really funny blog too.

theres a nice little community of sharp traders at investingfreak. they share their trades and other speculations. really cool site, i love it

Tommy: “I bookmarked this site!”

This blog is great. The few traders that write for this thing are on point and comedic. That really helps keep the reading light and interesting. I wish they updated the blog more, but with all the market action that has been going on since the start of September. I can’t blame them for that. When you find guys that are willing to share great information, take advantage of it.

Fetcher (via email)

You have to know that I truly enjoy using your blog. it’s very useful and really effective tool for everyone! Actually I found it via investimonials.com, according to it your blog has few reviews but I think your blog deserves to be rated higher. So it would be a big step to ask your readers/visitors to leave reviews in investimonials.com.

Again I appreciate the voiced opinions because as much as I ask for comments in order to improve the site and content many just don’t want to be bothered and pitch in.

One last thing is an update and apology. The last blog post before this was back in October and that is unacceptable but as Tommy mentioned about the market he is correct. (By the way I am long Blockbuster $BLOAQ, a January 165 Netflix $NFLX put which I acquired when Netflix was up at the $205 area a few days back)

I should begin posting more in the next few weeks. But if you are a reader you are urged to go to investimonials.com and write a review if you have something good to say. 🙂

-K

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