The Bull vs. Bear Case for Netflix

The disruption of Blockbuster's video rental business by Netflix (NASDAQ: NFLX  ) is a classic tale of a dynamic David bringing down a sclerotic Goliath. Netflix emerged from that epic struggle as one of the companies in America most beloved by both consumers and investors alike. Its stock soared ever higher, while the skeptics looked on in disbelief.

Things change, however. As the company wisely and proactively tried to disrupt its own highly profitable business model by pivoting to streaming video, the stock market eventually took the former media darling out to the woodshed for an old-fashioned thumping. After reaching a peak of over $300 per share in the summer of 2011, Netflix's stock plunged dramatically several months later after it became abundantly clear that the new business wasn't quite the same as the old one.

With the stock price now around $100 per share, some investors are hoping that Netflix can return to its former glory. Others believe Netflix is playing a losing hand, and will never achieve the profitability it once enjoyed.

So, who's right? Are the bulls more persuasive on Netflix? Or the bears?

We think there are strong points on both sides, so we decided to present the various arguments in the embedded slideshow below. To navigate through the slides, just click the arrows. Alternatively, you can just click the link below the slideshow. The entire deck might appear somewhat long, but it shouldn't take too long to look at.

The bull vs. bear case for netflix from The Motley Fool.

Motley Fool co-founder David Gardner has recommended Netflix several times for subscribers of his Stock Advisor investing service. The company is a great example of the innovative growth companies that David likes to recommend to his membership. If you are interested in how David picks his winners, click here to get instant access to a personal tour behind David's Supernova service.


Read/Post Comments (7) | Recommend This Article (45)

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 January 13, 2013, at 10:42 PM, Fang007 wrote:

    Why do you and virtually everyone else trumpet the proximity of reaping the major benefits of the Disney deal.

    In fact NFLX will reap few if any major Disney features until 2017. That is like the next century in a fast evolving business like this one.

    Why 2017 and not 2016. Simply because Disney is under contractual obligation to hand over anything starting production in 2015 to Starz.. By the nature of the business that means that most features will take a year or more to get to theaters. Then to boot, NFLX cant get it until after its theatrical run. There is I believe a seven to nine month lag in the mix.

    Sounds like a bear trap and sweet revenge for Starz.

    The Disney miracle is mere smoke and mirrors, appropriately, another fantasy.

  • Report this Comment On January 14, 2013, at 1:26 PM, p366 wrote:

    Fang007,

    Although it is true that Netflix will not have access to the theatrically released movies until 2016, starting this year, they gained access to Disney's "direct to video" releases.

    Also, in a separate deal, Netflix gained access beginning on December 4, 2012 to Disney's classic library. This is something that no other online service has ever had. See the following article:

    http://finance.yahoo.com/news/netflix-walt-disney-studios-an...

    For these reasons, the Disney deal is of immediate benefit to Netflix.

    Pam

  • Report this Comment On January 15, 2013, at 6:32 PM, LACEYLEE wrote:

    ONE OF THE BEST COMPARISONS I HAVE READ. I BOUGHT STOCK WHEN IT WAS $21.00/SHARE AND SOLD WHEN IT REACHED A LITTLE OVER A HUNDRED. WHY I BOUGHT WAS BECAUSE I WAS A SUBSCRIBER AND THE BUSINESS MODEL SEEMED TO WORK WELL, ESPECIALLY FOR US. DELIVERY WITHIN 2 DAYS FOR A CD AND DROP IN MAILBOX ON THE WAY TO WORK. STREAMING WORKS WELL ALSO. SOLVED THE PROBLEM OF DRIVING TO THE VIDEO STORE! STILL ROOM FOR GROWTH.

  • Report this Comment On January 15, 2013, at 10:13 PM, BarrySta wrote:

    Cut the gimmicks. Why a slide show? (It crashed three times withing a few slides of the beginning of the bear argument). What happened to plain old quick reading? Same is true of MF's ridiculously lengthy promo videos. Getting very tiring.

  • Report this Comment On January 16, 2013, at 8:38 AM, rboudbee01 wrote:

    I opened this by clicking on a link from an email and expected to read an informative article, not another advertisement. You're getting desperate. So very very sad.

  • Report this Comment On January 16, 2013, at 12:28 PM, Fool wrote:

    Great analysis, and I love the slideshow format. Keep up the good work!

  • Report this Comment On January 16, 2013, at 2:08 PM, Checkka wrote:

    Slide 48, excellent example showing writers at TMF do not understand the definition of a logarithmic plot.

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