What's Happening with NFLX?

While this is not a stock blog, I'm wondering why the Netflix stock is suddenly breaking 20. The only major news is that Movie Gallery is closing stores, but that can't be the only reason. Any ideas?

Stock chart via Google Finance.

Disclosure: I do not own share of Netflix, Blockbuster or any company I write about.

Comments

[brent]

Well the short answer is this:
The stock was upgraded (raised to "overweight" from "market weight" by one of the analysts (P. Gordon Hodge at Thomas Weisel Partners) who watch netflix last Friday. That often gets people in the stock buying mood.

Add to that the demise of Movie Gallery and what I personally think are signs of Blockbuster wasting themselves away and you have reason to be optimistic with Netflix. If I was buying netflix though I'd be waiting to see signs that Netflix was soon getting more movies available for the "Watch Now" feature. They should also try to partner with HTPC software companies, Tivo and slingbox to make the watch now work with those devices as that is the real future.

Brent

[BoB]

Slingbox has agreed to be bought by Echostar (Dish Network). Let's muddy the landscape some more! :)

[hueristix]

I think there is something to the Fed's oversized rate cut increasing people's risk appetite. Tech stocks are doing quite well. The Bernanke put? Also, the amount of shorts getting squeezed out because of this is a factor. This kind of action really looks like something else is up- a buyout, a major stake, or partnership.

I have been wondering when people would join the party... ever since Blockbuster cried uncle, the worst is behind Netflix and they are positioned well for DVD rental or VOD, as people become ready for it. I am just waiting for the set top box, so noobs can use it easily, and more content.

[sweetcollins]

i really need a credit card

[Old Timer Too]

One word: Blockbuster

[hueristix]

No major headlines about BBI that I see in the past couple of days...

[Old Timer Too]

Second word: THROTTLES!

Unless something happens relatively quickly, I'll send Mike the full details of how it happens along with proof that it is happening. This has already been confirmed with a Blockbuster Customer Care representative on the phone.

I'll give them this much: They are using a unique way of doing it.

[OdomZ]

Too bad "Throttling" does not exist. Netflix has been 100% up front when it says that people do not rent as much have preference over heavy renters. Members of Netflix that are (very) heavy renters will have more movies send from other hubs and will have more wait times on new releases or obscure titles. This "Throttling" conspiracy cracks me up. I get the 8 at a time and turn over 6-8 discs a week and have only had a short wait on a few discs, which I got a few days later. A few discs shipping from a different hub (obscure titles) and 95% of the time the same day Netflix gets a movie from me they send out the next one that same day. For someone that turns over 16+ a week it will not be the same service because they are paying 70-80 cents a disc. Think about the value.

[OdomZ]

Oh, and how will a Blockbuster customer care representive know that Netflix is "throttling"-- if anything Blockbuster has the issues with heavy renters. Raising prices, taking away plans and telling the customers to have 20 available now movies on their queue. Give me a break.

[gir]

BlockBuster customer care rep confirming that BlockBuster throttles.

Though the way we've changed the definition of throttling to be any delay no matter what the underlying cause, how can any service *not* throttle. With those definitions, I'm throttled, and I'm pretty light user. In fact, I have a disk coming from a remote center right now (one day delay to ship, then 3 day delay for cross-country shipping).

[Edward R Murrow]

My guess is that the Street is viewing Movie Gallery closing stores as a positive for Netflix. Looking at the flip side, I would offer that this is shortsighted of the Street and it could be a positive for Blockbuster. There are still millions of homes where people are so technically challenged that the clock on their VCR's are still blinking 00:00. These are the folks who will now be renting from Blockbuster stores rather than Movie Gallery.

[BoB]

"hese are the folks who will now be renting from Blockbuster stores rather than Movie Gallery."

Why wouldn't they be equally be renting from NF as well? If they are too stupid to set their vcr clock then they could choose NF as easily as they could choose BBO.

[Edward R Murrow]

Maybe because they don't even have a computer so they used to go to Movie Gallery and now they'll have to go to Blockbuster?

[Old Timer Too]

Actually, the problem isn't in throttling as much as it is implying they won't put anything in the way of receiving unlimited "rents." This applies to both NF and BB - NF doesn't have to delay shipments from further away sites, but they do - they add an additional day. Because it is "artificially" introduced - that is, it could be avoided with today's computer technology, it is a form of throttling.

It is interesting that both companies say they don't throttle their heavy renters. I suspect a lot the "lets define the word to mean what we want" came from a certain man in the white house a number of years ago redefining the meaning of sex. Nice precedent, president.

Basically, the term means to check the flow of... as in a fluid - to choke or restrict the free passage...

Therefore, delaying tactics restrict the flow and are throttling. When delaying tactics result in reduced service, then that service has been restricted, or limited, which then makes any description that says the service offers "unlimited" rents, a false and misleading description.

Some people don't like the term... I think they get all choked up over it (sorry, but I couldn't resist the pun). In all seriousness, the idea of throttling something started with choking - as in choking the life out of someone else.

Later, the term throttle came to have reference of throttling the flow of fuel into an engine, or controlling it. Thus, we have throttles on most fuel-powered engines.

In that regard, because the control of the flow of rentals ends up in the hands of the company (i.e., NF or BB), they are then consciously throttling or controlling how many titles are shipped on the accounts.

There are some tradeoffs with respect to the two companies. NF chooses to ship, wherever possible, the top title in your queue, whether it has a long wait or is available now. The trade off is to ship from wherever the title is available. They aren't controlling the mails, only the shipping point and if (and I don't know if we could ever prove this) they decide to select a place further away than one closer that has the title, then they are introducing a control. All other things being equal, they have introduced no other controls... (I'm now counting the one day delay, which has already been mentioned and is a controlling factor).

BB's tradeoff is to ship only from "close" DCs, meaning that they will ship whatever is available close to you and in many cases, it will result in a faster delivery. Also, and even it the shipment is from a distant shipping point, there is no delay introduced in the shipping date.

They have limited the point of shipping to what they judge to be three days away and no more. That results in some titles sitting forever in your queue until finally, they realize they can't ship from anywhere because none exist. A little irritating, to say the least.

That's only on the shipping end of things. Distance doesn't count, except where a conscious decision (questionable) is made to ship heavy users from a more distant location than necessitated by the availability of the disc.

If the pipe is big enough, the same flow will be experienced, but the liquid will get there later. There is no throttling with distance.

Pipeline distribution has always been a problem by the way - it is nothing new.

----

The question now arises over the concept of preferential treatment. Regardless of the need to make a profit, preferential treatment amounts to discrimination. Take that however you want, if you are the one that has been discriminated against (for whatever the reason) and are now treated as a second class customer, then there are problems.

-----

Could BB and NF avoid throttling? Absolutely and if they would do it, they could make a profit, keep customers happy, and still keep their costs down.

You may wonder how they could do it and I'll let you think about it. It does not avoid the inevitable delays introduced by heavy mail and shipping days, but makes up for them. With computers, it can be done automatically and the customers would love it.

Along with that, both companies should seriously consider pricing on volume of business and quit trying to control the volume some customers consume. Those who want the volume will pay for it. Those who don't will watch their volume and keep it reasonable.

Then end result would be no throttling or preferential treatment and profits for the companies, paid for by the heavy users.

[Smits]

"Motley Fool" continues NFLX as a "best buy now". Very popular investment site....They have been reccomending it for several years.

[Scott]

There is nothing "special" about NFLX stock price moving up along with not only the rest of the market, but Blockbuster as well.
NFLX's low occured in late July at around $16. It's high a few days ago was $22. This is a 37.5% increase.
BB's low occured in mid-June and again in late July (as NFLX) near $4. It consolidated for a couple months. It's high a few days ago was around $5.70. This is a 42% increase within the same time frame as Netflix.
So if something's up with Netflix (favorably), it is with BB as well (favorably).
If Motley Fool has NFLX as "best buy now" for "several years", or at least recommending it, I hope they don't start from 2004 (3 years ago - several years) since NFLX was at $40 back then. BB, of course, has fared far worse.

[Edward R Murrow]

Motley Fool used to be very good. Now it seems that whoever covers and writes about a company from Motley Fool also owns the stock. Morningstar is much better and can be found here: http://www.morningstar.com