Netflix Makes the Right Move, but It's Still Not a Screaming Buy
This just in: Netflix (NAS: NFLX) lives on; Qwikster is stillborn. Now I'm just waiting for R.E.M. to announce a comeback tour, and all will be well with the world again.
CEO Reed Hastings has pulled the plug on the only bad move he made all summer. The inexplicable separation between streaming church and DVD state would have made both services harder to use, and we're only using it at all because it's so darn handy. Take that away, and Netflix customers suddenly have near ly no incentive to stay, you know, Netflix customers.
"There is a difference between moving quickly -- which Netflix has done very well for years -- and moving too fast, which is what we did in this case," Hastings said in a press statement.
Compare that with how I saw the Qwiskter announcement: "This might be the right move to make in 2013 or so, when DVD technology starts to look as quaintly antique as VHS tapes. Not now."
Hastings has come around to my point of view, which also seemed to be shared by hordes of relieved investors today, as Netflix shares jumped more than 11% in pre-market trading. Then shares collapsed throughout the day, though, down more than 3% in late trading. Ouch.
Still, management isn't tone-deaf to the wants and needs of its customers, as I had feared it was. Coinstar's (NAS: CSTR) Redbox machines and Amazon.com's (NAS: AMZN) fledgling movie-streaming service had a window of opportunity closed in their faces, because a united Netflix remains more user-friendly than a bundle of a la carte alternatives.
Now I'm just waiting for the higher revenues from the almost-separated services to translate into a significantly stronger streaming catalog. If you assume that every DVD customer opts for the low cost of a one-disc plan, that much-maligned guidance update translates into $864 million in domestic sales or a 12% jump from the preceding quarter. That could be a nice boost once Netflix has a full quarter of price changes in effect. A year ago, the second-to-third-quarter domestic revenue jump was just 6.3%.
This makes Netflix a solid buy in my book again. But to earn a spot in the screaming-buy category right next to wildly undervalued camera chip maker OmniVision Technologies, Hastings still has more work to do. He's lost some of my trust, which is an absolutely essential part of any company's real value. To see what Hastings does or doesn't do to renew that trust, you should add Netflix to your Foolish watchlist. Get started, and then soak in all the news and Foolish analysis you can handle on Netflix -- or any other stock you choose.
At the time this article was published Fool contributorAnders Bylundowns shares of Netflix and OmniVision but holds no other position in any of the companies discussed here.Motley Fool newsletter serviceshave recommended buying shares of Netflix, Coinstar, and Amazon.com and creating a bear put spread position in Netflix. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. You can check outAnders' holdings and a concise bio, follow him onTwitterorGoogle+, or peruseour Foolish disclosure policy.
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