Dueling Fools: Why I'm A Netflix Bull

Netflix (Nasdaq: NFLX  ) is a controversial stock these days. Some well-respected investors have shorted the stock, while others champion it. In Fooldom, Netflix is a long-standing and very profitable Stock Advisor pick -- and even a core stock according to that service. But it's also the subject of a bearish Motley Fool Alpha recommendation, which suggests that you should buy put options on the stock!

So let's settle the matter. I'm here to tell you why Netflix belongs in your portfolio, whille fellow Fool Matt Koppenheffer will argue the bearish case.

I believe in Netflix as a long-term investment. The stock may rise or fall like a high-octane roller coaster from one month to the next -- but the company has a much brighter future ahead of it than even its currently soaring valuation would imply.

For one thing, the entertainment industry is turning digital, and Netflix is leading the charge in the movie segment. Apple (Nasdaq: AAPL  ) already broke open the levees for the music industry, setting the stage for an iTunes-like upheaval of film distribution. Netflix is fulfilling that promise better than anyone else.

Sure, there's competition, both real and potential. Apple's iTunes video store looks like a rival, as does the Amazon.com (Nasdaq: AMZN  ) Video on Demand service. But Netflix has carved out a very specific niche in all-you-can-eat movie subscriptions, with a 20 million-subscriber head start on Amazon's ambitious product. Years of brand-building and studio relations work give Netflix another leg up.

Then there's the service's integration with leading home theater systems. I dare you to find an Internet-capable Blu-ray player, gaming console, or other set-top box that doesn't feature Netflix streams these days. Google (Nasdaq: GOOG  ) has similar coverage for its YouTube service, but that's a complementary product, rather than a competitor. Who else even comes close? Nobody.

In fact, Netflix has a downright ridiculous head start, including prominently placed Netflix buttons on remote controls nearly across the board. Buy a TV or Blu-ray player from Sony (NYSE: SNE  ) , Samsung, or Panasonic (NYSE: PC  ) , and the Netflix logo will stare you in the face every day. Convenience is king, and Netflix has made it easier than ever to stumble over its services.

That's the domestic lay of the land, but Netflix is also busy exporting its streaming model to other nations, starting with Canada. If recent job postings are any indication, the company wants to establish a very large international profile indeed, across Europe, South America, and even the Far East. And I don't think any of that has been priced into the stock yet.

Click here to see fellow Fool Matt Koppenheffer's bear case for Netflix, then come back tomorrow to see our rebuttals, where I'll give my two cents on Matt's bearish argument.

Google is a Motley Fool Inside Value and Motley Fool Rule Breakers pick. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor selections. Alpha Newsletter Account, LLC has bought puts on Netflix. Motley Fool Options has recommended a bull call spread position on Apple. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund owns shares of Google and Netflix, but he holds no other position in any of the companies discussed here. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 20, 2011, at 6:41 PM, MikeVids wrote:

    I was reading today on HP how Netflix intends to start charging for family plan use. This seems to be a savvy movie because they are presenting the move as a discounted price package when most families have been already sharing their accounts for years without paying anything extra at all. However, this also points out how serious the issue of market saturation has become if they are already willing to alienate loyal longtime customers by finally calling them on account abuses that have been routinely accepted since the beginning of the streaming model. So taking into account the issue of market saturation, entry of new competition, the late but inevitable realization by the content providers of how much they

    have cannibalized and injured their product by underpricing it for short term gains, growing awareness of piracy options... I don't see how this would keep going up.

  • Report this Comment On April 20, 2011, at 7:25 PM, David369 wrote:

    MikeVids

    I agree with you on the market saturation. I would expect by now they have hooked about all the fish in the pond (except me). I think they realize that and that's why they are throwing their bait towards Canada now and are eyeing other countries. I'm hanging on to the stock I hold to see what happens for their next trick. Of course, that Matt K guy (the bear side) is telling people to jump out now before the PE goes down. Heck with that, just tell me when the stock price starts going down on a regular basis. Then I'll sell. Right now all I see are NETFLIX ads and other countries they can turn into zombies hooked on TV.

  • Report this Comment On April 20, 2011, at 9:23 PM, colddish wrote:

    Netflix will continue to go up, way up, for a long time to come.

  • Report this Comment On April 20, 2011, at 10:03 PM, MikeVids wrote:

    David, it's hard to bet against the stock because its CEO is so intelligent. He makes sure every content acquisition is a huge media event... but when he loses content (such as the entire Criterion collection to Hulu) ...it almost gets no coverage at all. As long as the studios are shortsighted and sell underpriced licensing rights for the short term gains, I think he has some room to grow. But if even one more studio besides WB decides enough is enough...then the party will be over.

  • Report this Comment On April 21, 2011, at 7:41 AM, David369 wrote:

    MikeVids,

    I think you are correct that the loss of content will eventually bite them. I think they know they have to get subscribers from other countries to keep the numbers going up. Yeah, the guy has to be smart to go so far so fast. The first time he trips it is going to be messy.

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