Join The Motley Fool for a conversation with author, investor and philanthropist, Whitney Tilson. In addition to managing Kase Capital, Whitney has coauthored More Mortgage Meltdown: 6 Ways to Profit in These Bad Times, Poor Charlie's Almanack, and most recently The Art of Value Investing, a collection of interviews with over 200 successful value investors.
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Whitney Tilson: Well, if you go back and you compare the balance sheet, the income statement, of Netflix today versus Amazon when it was the size of Netflix 10 years ago -- and by the way, Amazon stock has been a 20-bagger over those 10 years -- and by the way, Amazon has earned no profits, basically, in those last 10 years.
They have a deliberate policy of taking all of their cash flow and reinvesting it back into the business, such that their reported earnings are basically nil. That's the same thing that Netflix is doing, by the way. But Amazon's in a tough business. If you think about it, they actually have to ship products to you. They have to build huge warehouses.
It's a much more capital-intensive business than Netflix, whereas Netflix, the streaming business -- which is where most of the value is and where all the growth is for Netflix -- is if I'm streaming a show to you, and then a new subscriber comes along and I stream it to that household, there's almost no incremental cost for me to send some bits through the Internet pipeline.
Whereas if Amazon gets a second customer, they then have to ship more goods through the mail and build more warehouses to serve additional customers. Netflix, a streaming business, is inherently a lighter business model. The balance sheet is a lot cleaner. Amazon has always had net debt. Netflix has net cash.
I'm not sitting here saying I'm confident that Netflix, over the next 10 years, is going to grow in the same way Amazon has, but I think investing...once you've been around a while, everything starts to rhyme. Picking the right analogies between companies, as opposed to the wrong analogies -- because you can come up with an analogy to justify any position you want -- but getting that right, once you've been around a while, Netflix smells an awful lot like Amazon to me.