(B)(N) NFLX Netflix Incorporated

Drama. Analyse this. We looked at Netflix in January (please see our Post and Exhibit 1 below) just as it was breaking the Risk Price (SF) at $104 which is likely to rise to $150 by year-end if investors keep “liking” it that much – and of that, we’re not so sure, but we can still explore our options as risk averse investors (please see below). Our February call at $145 is long gone (on January 24 at $147) and the company is trading today at $189 which is more than twice the December close of $93.

A lot of investors feel that they got unduly burned in the run up to, and then, the price collapse from $298 in July 2011 to $60 a year later in October 2012 (just five months ago) and, forsaking the principle of caveat emptor, there are a number of lawsuits regarding the company’s alleged failure to deliver on its subscriber base (for example, March 13, 2013, Cohen Milstein Sellers & Toll PLLC Announces the Investigation of Netflix, Inc.) and a new complaint on an alleged “breach of fiduciary duty” (March 6, 2013, Netflix Shareholder Alert: Briscoe Law and Powers Taylor Investigate Possible Breaches of Fiduciary Duty by Officers and Directors).

And we have our own “confusion” about an apparent change in its Amortization & Depreciation Expense which was nil in the last quarter of 2012, but $400 million in every other quarter (please see the Annual Report, Form 10-K, December 31, 2012).

The “fundamentals” are that the company currently has a market value of $10 billion, total assets of $4 billion, and a shareholders equity of $785 million, and has never paid a dividend with operating revenue on sales of about $4 billion coming in at less than $100 million (except for the apparent boost of $400 million in the last quarter of 2012). It doesn’t make any sense for us to own this stock as an investment – we want our capital to be safe and obtain a hopeful return above the rate of inflation, without blowing our wheels off, so to speak – but the May put at $185 is going for $14.55 per share today and the cost of that can be partially offset by a sold or short call at $200 for $13.15, so that for $185 to $189 per share for the stock (if we can get it at that price – our estimate of the downside volatility is minus ($35)) and a “collar” to protect our price between $185 and $200 for $1.40 per share ($14.55 less $13.15), we could stick around and see the end of the show. Other companies seem to have to work a lot harder for their stock price, most of the time, but it’s possible to discount and work “greed” when it seems to pervade the market.

Exhibit 1: (B)(N) NFLX Netflix Incorporated – Risk Price Chart

Netflix Incorporated is a provider of internet subscription service streaming TV shows and movies. Its subscribers can instantly watch unlimited TV shows and movies streamed over the Internet to their TVs, computers and mobile devices and in the United States.

(Please Click on the Chart to make it larger if required.)

Postscript

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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.