By The Sizemore Letter
On my recent trip to Baltimore, I sat down to chat with Jeff Reeves about “revolutionary” stocks, using streaming pioneer Netflix ($NFLX) as an example.
Netflix has revolutionized media distribution. It’s ironic, given that Netflix started as a mail-order DVD rental company, but Netflix’s streaming video service effectively killed the DVD as a format. In a world where movies and TV shows can be sent to your TV on demand, waiting for a disc to be delivered by the postal service or–gasp!–leaving your house to rent a movie from a Redbox kiosk or Blockbuster video store seems almost quaint.
There’s one little problem with the Netflix Revolution: there is no guarantee that Netflix will be the winner. Netflix has few “moats” to speak of, and the company already has competition from Apple ($AAPL), Amazon ($AMZN) and Wal-Mart’s ($WMT) Vudu–three well-capitalized competitors.
Watch Jeff and I discuss Netflix in the embedded video above. And here is snippet of Jeff’s write-up from The Slant:
Netflix (NFLX) has been on a tear in 2013, with shares tripling since Jan. 1, and recently, Netflix reported second-quarter earnings that beat estimates, while NFLX revenue met expectations.
But NFLX could be hitting a snag soon, says Charles Sizemore, as its relatively high P/E ratio and stiff competition from Amazon (AMZN) and others put the screws to this streaming video stock.
NFLX certainly has a great product, and Charles and I are both personally subscribers of Netflix. But that’s the thing — as NFLX users, we are both all too familiar with the recent move by Amazon Prime to snap up Nickelodeon shows from Netflix by paying parent company Viacom (VIAB) a juicier royalty rate in exchange for exclusivity on Blue’s Clues,Dora the Explorer, Go, Diego, Go! and other children’s hits.
Being first doesn’t necessarily guarantee success, and that’s a real risk for NFLX. Because after Amazon there’s also Google (GOOG) with its paid YouTube channels,Intel (INTC) launching an Internet cable product and Apple (AAPL) pushing its own digital video businesses.
Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long WMT and INTC. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”
This article first appeared on Sizemore Insights as The Netflix Revolution: Should You Invest?
