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2-Star Stocks Poised to Plunge: Netflix?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, movie rental service Netflix (Nasdaq: NFLX  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Netflix and see what CAPS investors are saying about the stock right now.


Headquarters (founded) Los Gatos, Calif. (1997)
Market Cap $3.5 billion
Industry Internet retail
Trailing-12-Month Revenue $3.5 billion

Founder/Chairman/CEO Reed Hastings

CFO David Wells

Return on Capital (average, past 3 years) 32.7%
Cash/Debt $813.3 million / $400.0 million



Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 18% of the 9,609 members who have rated Netflix believe the stock will underperform the S&P 500 going forward.

Just yesterday, one of those bears, fellow Fool Nathan Alderman (TMFNato), touched on the strong competitive headwinds working against Netflix:

I love Netflix. It seems powerfully and passionately engaged in trying to give its customers what they want, at a fair and honest price. Its streaming catalog is chock-full of stuff I want to watch, and I'm very excited about its original series. But it's changed its business model in an inevitable and unfortunate way. Its shift from discs to streaming has gutted its moat, turned its former customers into bitter enemies, and left it with much fewer ways to differentiate itself from a host of rivals swarming over the industry's newly lowered barriers to entry.

Of course, that short pitch doesn't even come close to telling the entire story for Netflix. You're in luck, though. The Fool's brand-new premium report on Netflix tells all sides of the story for one of the most compelling tech companies in the world. You can grab your copy now, which comes with free updates for 12 months -- just click here.

Want to see how well (or not so well) the stocks in this series are performing? Follow the TrackPoisedTo CAPS account.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Netflix, Apple, and Amazon. Motley Fool newsletter services have recommended buying shares of Netflix, Apple, and Amazon. Motley Fool newsletter services have also recommended creating a bear put ladder position in Netflix and a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

Read/Post Comments (2) | Recommend This Article (2)

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 October 04, 2012, at 8:44 PM, lgcret wrote:

    NATHAN...ARE YOU SHORT? Read the latest figures about this jewel, and print a "foolish retraction".

  • Report this Comment On October 04, 2012, at 9:10 PM, GatorATL wrote:

    Agreed. There are a lot of naysayers out there just looking to trump up negativity so see their shorts succeed.

    It comes down to this: if you want to invest long in the streaming business, you choose Netflix. Why? Because the competitor's have a long way to go. I am both a Netflix subscriber and Amazon Prime. Amazon's streaming model is more focused around Video On Demand (pay per view) than an all-you-can-watch buffet. Their catalog for the latter is quite dismal. There is no way my $80/year is covering free 2-day shipping and future unlimited content deals. I didn't join Prime for the movies though so I don't care.

    Redbox/Coinstar will experience worse turmoil than Netflix going forward as they rely more heavily on DVDs and support for their existing vending machine network.

    Quite frankly, I would not be surprised if Amazon bought Netflix. Afterall, Netflix video is streamed over Amazon's AWS network (little known fun fact). Why reinvent when there is already a tailored solution for your infrastructure?

    If Netflix is guilty of anything, it was moving too swiftly to eliminate it's DVD service last year and ratchet up prices for streaming. This is inevitable however. Content prices from the studios have increased exponentially for all parties concerned (they aren't just gouging Netflix). As it stands, I pay more for my Spotify membership than Netflix right now. That is lopsided and bound for correction.

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Netflix CAPS Rating: ***