Whoa, there! I just got a Sirius case of deja vu.
Someone clue me in -- are we debating disc-dealing Netflix (NASDAQ:NFLX) here, or are we rerunning the Sirius (NASDAQ:SIRI) duel?
Because this second verse sounds a lot like the first: double-digit revenue growth. Double-digit subscriber growth. But somewhere, somehow, I seem to have missed Rick's mention of the double-digit growth in Netflix's profits.
Perhaps that's because Netflix's profits are shrinking, rather than growing. Its first-half profits in fiscal 2005 were a bit worse than flat against the year-ago first half. Its free cash flow came in negative for the same period, as the company burned $9.1 million in cash. And its one free cash flow-positive quarter so far this year generated 76% less cash than its 2004 equivalent. (You'll need to register with anumati.com to access those two links above.)
Netflix is a rule breaker, all right -- it's breaking the first rule of capitalism: Companies are supposed to earn profits for their owners.
Come to think of it, perhaps this is the real reason that Wal-Mart (NYSE:WMT) "declared victory and went home" from the DVD-rental wars. It may be the reason that Amazon.com (NASDAQ:AMZN) hasn't gotten itself muddied in the rough-and-tumble U.S. DVD rental market. Both of those bastions of capitalism know better than to compete with a company that is willing to drive its profits into the dirt if that's what it takes to retain market share.
How's the old saying go?
"Never wrestle with a pig. You'll both get dirty, and the pig will enjoy it."
Wait! You're not done. This is just a quarter of the Duel! Don't miss Rich's bearish beginning, Rick Munarriz's bullish riposte, and Rick's final word. When you're done, you're still not done. You can vote and let us know who you think won this Duel.
Netflix and Amazon.com are Motley Fool Stock Advisor picks.
Fool contributor Rich Smith does not own, nor is he short, shares of any company named above. If he did (or was), The Motley Fool would require him to tell you so. We're sticklers about things like that.
