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Maybe You Don't Hate Netflix After All

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After a year of embarrassing flops, Netflix (Nasdaq: NFLX  ) was going to have to take its lumps.

CEO Reed Hastings bubbled up near the top of many "Worst CEO of 2011" lists, and given the beating that the stock took from its all-time peak in July to its bottoming out a couple months later, some of the knocks were earned.

However, we now see how far Netflix has bounced back in such a short amount of time. concluded its annual contest for the Worst Company in America this week.

Electronic Arts (Nasdaq: EA  ) -- the video game giant that has earned the ire of some for its life-sucking buyouts of smaller developers and its penchant for adding incremental purchases into its commercial releases -- took the top honors.

Netflix, fittingly enough, made the cut as one of the 32 finalists.

However, consumers have warmed up to the video service giant to the point where Netflix got eliminated from contention in the very first round.

You like me -- you really like me
Netflix was pitted against GameStop (NYSE: GME  ) in the first round of this year's voting-based contest.

GameStop is an odd nominee. Why is GameStop so vile? Yes, it sells new games at retail prices, but it has a loyalty shopping program that makes it compelling to do exactly that. It pays a pittance on trade-ins that it then resells at juicy markups, but why is that so terrible?

We live in a capitalistic society. If someone could put GameStop out of business by offering lower prices and better trade-in terms, why hasn't that happened? No one forces die-hard gamers to buy their titles and gear at GameStop.

GameStop isn't vile. Surely it was being placed in this battle so that the evil empire of Netflix would move on to the second of five rounds.

Well, the readers didn't see it that way. GameStop collected a little more than 70% of the votes. It wasn't even close. Many of the reader comments pointed out that while the summertime price increase and short-lived Qwikster fiasco were bad business moves, it didn't mean that Netflix was a company for consumers to loathe. Netflix's quick reversal on Qwikster even won some raves.

"GameStop is just bad in so many categories," one voter wrote. "Netflix at least has listened to customers and changed their mind about things."

On to the next round
GameStop, if you're curious, went on to lose to Wal-Mart (NYSE: WMT  ) in the second round of the tourney.

Wal-Mart? Yes, it was definitely a peculiar slate of nominees. GameStop is evil because it charges too much, and Wal-Mart is vile because of how far it will go to make sure that it charges customers too little.

Go figure.

However, back to Netflix, if it's not as loathed by consumers as GameStop -- or Wal-Mart, for that matter -- could it be that it has overcome last year's blunders and poorly executed initiatives?

Nod your head if you want to give the correct answer.

The mathematics of an apology accepted
Consumers, subscribers, and shareholders have all forgiven Netflix.

Pull up a stock quote. The same stock that traded as low as $62.37 five months ago is trading nearly 80% higher today.

Pull up its latest quarterly report. After a sharp slide during the third quarter, Netflix tacked on net new streaming customers during the fourth quarter. Yes, DVD-based customers continue to decline, but that's not Netflix's platform for growth these days.

Is Netflix as respected as it was a year ago? Probably not. It may have a record number of total subscribers right now, but its once-sterling reputation did take a few body blows that may be slow to heal.

However, at the end of the day it's hard to argue against simple math. The stock chart, quarterly financials, and now the poll show that Netflix's apology has been accepted.

Stream on
Motley Fool co-founder David Gardner has been a fan of Netflix as a disruptor for nearly a decade, but there's a new rule-breaking multibagger that's getting him excited these days. Learn more in a free report that you can check out right now.

The Motley Fool owns shares of GameStop and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and Netflix. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Motley Fool newsletter services have recommended writing covered calls on GameStop. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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 05, 2012, at 1:53 PM, thetruth2012 wrote:

    Is EA really the worst company in America? Of course not.

    What people are missing is the ability of the gaming community to gather quickly and express their outrage online.

    I hope SNE and MSFT are taking note. The mere rumor of the ability for the next gen not to play used games has already sparked outrage through out the community. EA won worse company because of their DRM (see online pass) while other publishers like ATVI have decided against online passes.

    Should SNE and MSFT not allow used games winning the award of Worst Company in America will be the least of their worries.

  • Report this Comment On April 05, 2012, at 2:01 PM, patentguy999 wrote:

    YEA! I still love the Netflix service, even after the dumb moves of last summer. Those moves caused me to drop my DVD subscription that I didn't use anyway, thus saving $$$$ every month. It will stream several different programs to devices in my home simultaneously. It is easy to use for the whole family, kids and all. The stock is still way up from where I bought it. What is not to like?

  • Report this Comment On April 05, 2012, at 2:56 PM, flohaugl wrote:

    I am now watching Netflix down here in the Republic of Panamá! I hope to soon dump my $65 per month Satellite service (SKY).

    I also have owned Netflix stock for years and still wish I had sold at 300+, ... but I guess I'll hang in there for the long haul!

    Viva Netflix!

  • Report this Comment On April 07, 2012, at 4:16 AM, funspirit wrote:

    Netflix has tremendous competition coming, I think the stock price is headed lower.

    Here is a column of the competitive threats facing them btw-hope it helps

  • Report this Comment On April 07, 2012, at 6:10 AM, duuude1 wrote:

    Hi again Funspirit,

    You might want to head on over to the SA NFLX board where there has been a long history of pros and cons debate over NFLX. You'll see a lot of the points in that article you reference debunked. Old, worn-out arguments that I think are not really relevant but have lingered for many many years. Just one example - no moat. If there is no moat, then why, oh why in the many years that AAPL, GOOG, WMT, AMZN, CSTR, and many others have been trying, why haven't they already made a dent in NFLX's incredible growth? That's because there is, I repeat there IS a moat there protecting NFLX from a competitor hiring a couple of pimply-faced programmers and launching a streaming site in 3 months. It doesn't work like that. The other arguments are similarly simplistic and flawed. but again, please check out the SA boards and check out both sides of the great arguments there.



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