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Short Netflix

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By GusSmed
August 4, 2003

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Comments from shorts and bears should always be welcome on a board, since the regular posters are usually longs and hence prone to glossing over its shortcomings.

However, I think you're making a mistake to short Netflix simply on the competition from Blockbuster and Wal-Mart.

I don't see Blockbuster being a serious threat; they've taken too long to get into the market, and don't seem to understand it anyway. The analog is Barnes and Noble vs. Amazon. Sure, Barnes and Noble has a large brick and mortar operation, but that never translated into a successful web business.

Wal Mart clearly has it together, though they need to work on their processing and shipping times. However, I think it's much too early to short on the basis of Wal Mart driving Netflix out of business, because the market is far from saturated. There's a very real possibility that both will expand into this market greatly before either begins seriously damaging the other's business.

I do believe Netflix's growth will subside, too, but the current price only seems to include about 32% annually, using Free Cash Flow as a basis and using's intrinsic value calculator against a discount rate of 11%. 32% annually is a lot, and that's why I'm not long the stock right now, but Netflix's actual growth has been higher than that so far.

I'm looking to buy the common back in the teens.

Me too. I just don't see enough weakness in the economics or grotesque overpricing to risk shorting it.

- Gus

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