Netflix Executes

When I found out Netflix was beginning to transition its business to include a streaming model (Feb 2009), I knew this company was on the forefront of pioneering the next revolution to Home Movie viewing. Ignoring Oppenheimer's "Underperform " rating on Netflix , what I saw was a company that executes.

Netflix has been growing profitably and comfortably since its founding in 1997. I don't believe they have ever reported negative earnings and their business model is very simple to understand. They rent movies over the internet which caters quite nicely to the vastly growing idea (especially with younger generations) of living on the internet.

Netflix Total Cash: $254M

Netflix Total Debt: $38M

As a side note, I always ignore bank Upgrade/Downgrades since I don't really believe they know anything except how to confuse you with fancy formulas and over-analyzed finance models. It's easy to jump on the bandwagon (Oct 23, 2009 after Netflix earnings) once a stock rises in price as Oppenheimer has. It was only back in July 2009 when Oppenheimer downgraded Netflix (NASDAQ: NFLX).

As Katy Perry sings it: Shut-up and put your money where your mouth is Oppenheimer. I did back in my August portfolio.

Deceiving Recovery

I'm sure all would agree that this year has been a recovery if you just look at percent gain vs percent loss. But being an engineering major, I need to see the numbers from the bottom line in terms of cash (total loss vs total gain). What I found was quite interesting as percents can be deceiving:

Jan 1 to Dec 31, 2008 I had a 401k loss of 15%
Jan 1 to Oct 8, 2009 I have a 401k gain of 39%

At first one may think..."Wow I totally made up all the cash I lost from last year!"

Now let's take a look at the bottom line...

Jan 1, 2008 401k value: $122k
Dec 31, 2008 401k value: $104k
2008 Contribution: $22k
Gains/Losses from investing: ($40k)
Bottom Line Formula = (104-122)/122 = -15% loss

Jan 1, 2009 401k value: $104k
Oct 8, 2009 401k value: $145k
2009 Contribution (thus far): $18k
Gains/Losses from investing: $23k
Bottom Line Formula = (145-104)/104 = 39% gain

The reason for this discrepancy is in the numbers:

• For every $1 invested in 2008, I lost $2.
• But for every $1 invested in 2009, I gained back only $1.

So my bottom line return from investments in 2009 ($23k gain) is still behind what I lost in 2008 ($40k loss).

I don't consider this a recovery yet, do you?