NEW YORK: Whitney Tilson, managing partner at Kase Capital and author of The Art of Value Investing, says you’re forgiven if you guessed Amazon.com (AMZN), but these bullet points are part of his case for owning Netflix (NFLX).
Tilson has a checkered history with Netflix having publicly “lost a lot of money” shorting the company based on a thesis he laid out for SeekingAlpha.com in December of 2010.
Tilson covered his short just months later, explaining in great detail why he did so. Ironically the stock was close to where it is today, having fallen from highs of about $300 in July of 2011 and bottoming the $50’s a year later.
Spirit unbowed Tilson got long the stock ahead of the latest super-spike. He thinks NFLX shares have more room to run.
“It’s easy to say ‘I missed it,'” Tilson notes in the attached video. As far he’s concerned taking a pass on shares because they’ve gone up 4-fold in the last year would ignore reasons the stock is comparably cheap compared to other companies billing customers on a monthly basis. “They’re trading at $400 per subscriber in a world of $1,000 per sub (valuations).”
Tilson also says Netflix has the pole position in the “winner take all” dynamic” of the streaming business. There’s a huge amount of money being dumped into paying for content. Netflix has addressed this race by developing its own shows and pouring the bulk of its remaining cash flow into staying ahead of the competition. “Who else is going to spend $3 billion a year for streaming content?”.
The answer is most likely no one but that doesn’t mean Netflix is in the clear. As demonstrated by ABC’s (DIS) announcement over the weekend that it would allow streaming of its local program via a simple app, there’s more than one way for Netflix to lose share to content owners.
Tilson is well aware of the risk. “I don’t think it’s a slam-dunk at all, certainly from this price, but it’s a very interesting option so I’m hanging in there,” he concludes. DNA