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Wednesday, 27 August 2003
August 27, 2003 Netflix, Inc. (NFLX)
This is a stock that I DO have some shares in another account. That gives me a little more familiarity with the issue and it may give me a bias towards it but it showed up in the numbers today and deserves consideration.

According to money.cnn.com, Netflix "...provides an online entertainment subscription service providing subscribers access to a library of filmed entertainment titles formatted on DVD." What this amounts to is a DVD subscription service, where, as I understand it (I do not use the service), for a monthly fee you can rent unlimited #'s of DVD's (sequentially not all at once lol).

Anyhow, NFLX is indeed having a nice day trading at $32.66 up $2.87 or 9.63% as I write.

On July 17, 2003, NFLX reported their second quarter results which, as I see it, were nothing short of stellar: Revenue was $63.2 million, up 74% from the same quarter last year which was $36.4 million, and up 14% from the $55.7 million for the PRIOR 3 months. They reported 1.15 million subscribers, adding 327,000 new subscribers during the quarter, a 39% increase in subscribers added, but on a negative note a decrease in 22% from the 417,000 new subscribers added in the first quarter of 2003.

Morningstar shows the exponential growth in revenues reported by this company at $1 million in 1998, $5 million in 1999, $36 million in 2000, $76 million in 2001, $153 million in 2002 and extrapolating the current quarter would get us north of $240 million in 2003.

Free Cash Flow, which in my humble opinion, is a good measure of viability of a rapidly expanding business (remember all of those dot-com's which 'burned' up all of their cash?)...has improved nicely from a $(29) million in 2000 to a positive $2 million in 2001, $37 million in 2002 and $57 million in the trailing twelve months.

This company is LOADED with cash (relatively speaking!) with $116.3 million in CASH reported on Morningstar.com with $51.5 million in current liabilities and only $500,000 reported in long-term liabilities. In addition, NFLX report $3.3 million of other current assets on Morningstar.

If you go to Yahoo.com and check under finance and detailed stock quotes you can pull up the 'profile' on Netflix where I have obtained the following information: Market cap is a moderate $715.1 million with 24.0 million shares outstanding and 10.8 million shares that float. No dividend is reported. Since NFLX just turned profitable, no p/e is recordable, the price/sales ratio is a moderately pricey 3.55, and as of 7/8/03, there were 8.99 million shares out short representing 83.3% of the float (!!!). This gives us a short ratio of 6.96 days based on average trading volume of 1.29 million shares.

Overall, I like this stock a lot. The growth is there although there is a SLIGHT decelleration of quarter to quarter subscriber growth, the numbers are still strong. The company has lots of cash and is throwing off more $millions in free cash flow. The p/e, p/sales is a bit expensive but with all of the other things in line, this shouldn't be a problem. Recently, there was a court decision upholding Netflix's methods (? patents) on delivery of DVD's...so there is what we call a nice 'moat' forming. I have borrowed that from Morningstar.com which puts out a nice newsletter and likes to talk of moats around companies....sounds medieval absolutely.

Good luck investing! Please let me know what you think and share this website URL with your friends. If you have any questions, comments or words of encouragement, please feel free to contact me at bobsadviceforstocks@lycos.com.

Bob


Posted by bobsadviceforstocks at 1:53 PM CDT | Post Comment | Permalink

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