FR: Wait a Minute, Mr. Postman!

Article: Wait a Minute, Mr. Postman!

Up next in my “Fool Revisited” series was a piece based on some news at the time. Back in September 2011, there were some worries that the US Postal Service was going to default and shut down. Could you imagine if that had actually happened? It’s almost like the current Congress continually pushing off a government shutdown for four weeks at a time because they can’t figure out how to get anything done. That would probably not happen in a developed democracy or anything…

I used the news of the potential USPS closure to take about Netflix (Nasdaq: NFLX), who at the time still delivered movies via the mail (such a quaint time in our nation’s history!). And while I believe you can still sign up for its disc-by-mail service, the majority of Netflix’s customer have moved to streaming, spending hours upon hours staring at an endless array of movie and shows every night before finally deciding to just watch old episodes of something that you have seen hundreds of times… or is that just me?

Unlike previous articles in this series, there is no ancient tweet announcing this piece, though I’m sure it did just fine on its own because it was written about Netflix. I’d have to check and see how this one “performed” relative to some of my other early articles.

Had an investor purchased and held onto Netflix after the publication of my article – which was generally positive about the company’s prospects – they would have been EXTREMELY happy with their choice, a regret that I am sure I will cover later in this series. Shares of Netflix have trounced the S&P 500 by a 3-to-1 ratio since my article was published. The compound annual growth rate (CAGR) and total growth of Netflix beat the S&P 500 by a pretty substantial margin from article publication (September 13, 2011) through January 12, 2018:

Stock Start Price End Price CAGR Total Growth Value of $10,000
Netflix $29.82 $221.23 37.20% 641.88% $74,188
S&P 500 $1,172.87 $2,786.24 14.63% 137.56% $23,756

Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits

Netflix the stock has been a thorn in my side for a very long time. I never personally owned shares, but at a couple of different points, I considered buying shares, only to choose other companies. Often, this though was justified when subscriber growth slowed or some other thing impacted the stock’s performance around earning season, but it always recovered, and when it did, it went way up as you can see from the chart above.

Part of this is because the stock has always had a pretty healthy short interest; it currently has nearly 6% of its current shares shorted. This affects the shares performance around earnings because good earnings force folks to close their shorts, while poor earnings allow the people shorting the stock to continue to hold on and see their short grow. Look at any price chart for the stock over the past few years and you can see a lot of volatility as well.

All this said… Netflix may have its best days behind it. I don’t think it will go to zero anytime soon, but I also think that it is no longer alone in the digital streaming space. As content costs continue to rise – and as much better funded competitors like Disney get in on the streaming game – Netflix might face some slowing growth over the next few years. I personally wouldn’t buy shares now, but if it can show that it can get content costs down or continue to grow its subscriber base, it might be an okay thing to hold. Just don’t expect it to double 7 times over the next 6+ years.

Until next time…

Disclaimer: I do not own currently own shares in Netflix. I also have no plans to purchase shares within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.

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