ANT’s Opinion

December 20, 2010

– Massively overvalued (but justified by growth)

– Content selection is big relative to other players (but weak compared to what most consumers want)
– Content costs are going to jump big time over the next few years – Management can “manage” margins (by not overpaying for content) but overtime this will degrade the value proposition to consumers (i.e. selection will get worse over time and relative to other providers).
– $8.00 doesnt buy much content and pricing will need to increase.

Another issue for Netflix is that overtime much of it’s distribution will be eroded. Once apple has content deals they might push Netflix off iTV. Same with MSFT on xbox 360. Netflix could easily build it’s own box or buy a small player like Roku but the risk is that Netflix looses what it’s near universal distribution (one of its core strengths today).

Conclusion: the short is short is justified and it is a matter of time before this company comes back to earth. Note that ANT is not yet opening a position on this name due to a lack of time to research currently.


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