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Thanks for your thoughts on APOL.
APOL had massive selling today, as well as a fairly large drop in share price. There was another negative article about APOL as well as a short seller on CNBC talking about the downside to for profit online colleges.
http://citronresearch.com/index.php
http://www.cnbc.com/id/15840232?video=1051713679&play=1
With the selling today, where do you think APOL might find some support? From your post in late January, the support at $77.50 didn't hold.
Thanks!
It may be old news, but when Obama goes over this plan again IMO the market will again have a negative reaction. The more the public hears about the bank bailouts, the auto bailouts, the homeowners bailouts with "cram down" provisions on the loans, IMO they will become discouraged with the overall market and government spending. Not to mention the proposed budget with the higher taxes on the wealthy...especially the mortgage deduction and charity deduction rule changes.
With Obama speaking tomorrow about his housing "bail out" plan, IMO that will set a negative tone for the market on Wednesday.
IMO many taxpayers are tired of all of the bail outs...especially those who are struggling to pay their own bills, and who didn't overextend during the housing bubble.
I agree with you about their ability to pay back the TARP money within three years. If they wanted to raise private money to pay back the TARP loan, it would probably dilute the shareholder value. (and the share price).
Did GS take TARP money? I think they did, but at one time said they would pay it back as soon as possible. Is this correct? Thanks.
Libbyt
I never understood why having a low stock price made owning the stock more affordable, other than Berkshire Hathaway.
IMO it doesn't make any difference. However to a small investor, I think it is a "marketing idea" to sell the stock, as owning 300 shares of a specific stock "seems" like it is worth more than 1 share of the same stock.
I realize that rationally it makes no difference....but investing, and buying specific stocks isn't often a rational decision.
Thank you. After I posted that message to you I went back to look at a long term chart of GOOG....a good suggestion on your part, as I was just quickly "thinking thorough" my thoughts from the memory of the trading of GOOG.
With the drastic selling in so many stocks, I would think that some more forced selling might come into play later this afternoon if the market isn't able to rally.
IMO recently there was some talk of GOOG paying a dividend. However with the recent damage to the share price of the stock, I don't think a dividend would help change the direction of where this stock is trading.
I could never understand why GOOG didn't do a stock split. I realize that a stock split doesn't change the value of a stock, but it makes it easier for a smaller investor to own the specific security.
Do you have any thoughts on a range where GOOG might trade?
Recently I have been buying and selling a specific trading range in GOOG, but having GOOG trade under $300 IMO has changed that range. Also with GOOG trading under $300 I would think it would be a stock that some institutions would not want show as one that they own at the end of the month.
IMO trying to decide a specific value for GOOG based on growth and value is very difficult at this time. Are there any gaps in the GOOG chart that you think might be filled before it starts to head higher?
I owned GOOG as a long stock several years ago but sold it at $169 since I felt it was getting overvalued. I seem to remember that after I sold there was a gap up on GOOG where it started trading over $200 a share.
Thanks for your thoughts on GOOG.
Since your post, I've started to accumulate shares of Williams Sonoma stock. I've owned WSM in the past, and I didn't realize how low the share price currently is trading. It looks as though the CEO of WSM received a margin call, which probably added to the selling pressure in this stock. IMO this is not a company that will go bankrupt, and it is one of the best retailers currently in the market.
Williams Sonoma is a store where many brides register for gifts. When I'm buying a wedding gift for a bride, most of the time I buy the gift online through Williams Sonoma since I know their customer service is excellent, and the bride will receive the gift she requests. The quality of their merchandise, as well as the customer service they provide is outstanding. Many customers will pay a higher price for quality products, and excellent customer service.
With the chart that you posted on GOOG, do you still think that GOOG will trade lower?
I don't believe that GOOG ever traded over 388 after earnings, except in the After Market trading.
With AAPL breaking the $100 share price, where do you see technical support for AAPL?
I realize that there have been rumors of Steve Job's health, and most likely some forced selling of AAPL by those needing to meet margin calls.
Probably some of the selling in AAPL today is due to worries about the weak consumer, as well as the overall future company plan for AAPL leadership.
Thanks. I'll do a search of the posts you mentioned.
Does anyone have the "Cliff notes version" of what are the new rules to the market today? (a URL link to the exact new rules?)
Am I correct that there are 799 stocks that can't be shorted, but shorting on other stocks is allowed?
Also...on Monday, hedge funds need to report their short positions? Wouldn't this cause short squeezes like were seen during the dot.com period of the market?
I realize that there is short covering in the financial stocks today but won't disclosure of hedge fund short positions also cause a short covering squeeze in various stocks once these positions are disclosed?
IMO the normal rules of shorting are now an unknown, as well as Paulson's thoughts of a possible solution for the banking problem. It seemed that the market started to turn around with the news that Britain has banned shorting of financial companies and is considering extending the ban to other companies.
The idea proposed that hedge funds disclose their short positions has also seemed to start a short covering rally. This is especially evident in highly shorted stocks with small floats.
The volume in MAGS, and KNOT has been unusually high. Both companies have fairly small floats and a high short interest.
Enforcement of Regulation SHO is IMO a good idea. As was mentioned here yesterday, I think it is ironic that it took the financial stocks to have a crisis before this issue has become more widely understood.
IMO the downward pressure on the market isn't over yet, even with the decision to enforce the short selling rules.
I know that the last time the decision was made to enforce this rule the market rallied. However, the rally eventually faded which I would think would give some of those who are short no incentive to cover their short positions at this time.
Too many of the afternoon and evening news shows are highlighting the downtrend in the markets both in the U.S. and foreign markets. Even those who trade on a professional basis are saying that they are staying on the sidelines, and not willing to start buying at this point.
IMO the average investor either is clueless about the current market (they look at their market statements once a year), or they are scared and are looking to put their money in a less risky asset than securities.
IMO we might end the market day on the lows of the day due to forced selling.
The average investor is fearful and IMO there will be quite a few firms raising cash for possible redemptions, as well as firms needing cash due to forced selling of some of their positions.
Regulation SHO hasn't been enforced. I'd like to see the enforcement change the market action today, however I think it will take some time before the enforcement of the rule helps to improve market conditions.
When you look at the stocks on Regulation SHO, some of the stocks going down in value the most today are not on that list. Those stocks are already down in value, and the stocks being sold are the ones where profits have been made by institutions holding stocks with "paper" gains.
Great call on GS!
IMO the market will most likely see some significant down days at some point in the next 10 days, if only for setting up end of the quarter window dressing buying for various funds.
Do you still feel the market will trade higher into options expiration?
Libbyt
The Knot Up After Analyst Says Slow Economy May Help Local Ad Biz, Web Content Stocks Mixed
Sector Glance: the Knot Shares Rise
Wednesday December 19, 4:20 pm ET
NEW YORK (AP) -- The Knot Inc.'s shares fared better Wednesday than most online content stocks, rising after a Roth Capital Partners analyst said an economic downturn might help the Wedding site operator's local advertising business.
In a Wednesday client note, Roth analyst Richard Ingrassia called the stock a top pick for 2008. He said The Knot's local listings base includes more than 15,000 merchants, and in the past corporate merchants have reacted to economic slowdowns by increasing spending to promote their wedding businesses.
"Apart from gift buying (the average purchase tends to decline in a recession), wedding demand itself has been historically immune to business cycles and broad consumer spending trends," Ingrassia said.
Ingrassia, who rates shares of The Knot "Buy" with a $28.50 price target, also thinks the New York-based company has good prospects for being acquired and suggested Martha Stewart Living Omnimedia as "one of the more interesting potential suitors."
Here's how key online content providers fared in trading Wednesday:
The Knot Inc. rose $1.13, or 9 percent, to $13.76.
TheStreet.com Inc. rose $1.43, or 9.8 percent, to $16.05.
Answers Corp. rose 10 cents to $6.29.
http://biz.yahoo.com/ap/071219/sector_glance_internet.html?.v=1
*********
The KNOT has been a subject of past articles about being a buy out candidate. I personally find that I use the Wedding Channel for sending almost every engagement, shower and wedding gift. It saves me time, and guarantees that the couple receiving the gift will be receiving a gift that they have requested.
Maxim MXIM had its stock delisted from the Nasdaq stock exchange on Oct. 2, after the Securities and Exchange Commission denied its appeal to remain listed. The commission's latest decision has terminated a temporary stay it issued last week to Maxim's trading suspension, after the firm missed the Sept. 25 deadline to meet regulatory filing requirements. Maxim will now be quoted on the Pink Sheet Electronic Quotation Service.
This action does not change our fair value estimate in any way. The fundamentals of Maxim are as strong as ever, and we remain convinced this chipmaker presents an attractive long-term investment. Right now, Maxim expects to finish restatements and to comply with filing requirements in the first quarter of calendar-year 2008. It should then be able to re-list its stock on a national exchange.
http://quicktake.morningstar.com/Stocknet/san.aspx?id=209008
Thanks for posting the interesting video, although for me it is painful to watch Cramer. (where is the Advil?!?)
I would think that with the high amount of institutional ownership in RIMM, that there would be pressure by some of these funds to work against those who are short, and move RIMM higher next week in order to have their end of the year statements look much stronger. So the question might be, who has the greater ability to move the market in RIMM, the hedge funds or the institutional owners?
Maybe today was an attempt to create a "bear trap" knowing that the after market selling and close of RIMM will be a low, and next week with a possible gap up open, short covering might drive RIMM higher?
What has changed IMO between that period of time and the current market, is that many small unknown companies are being bought out by much larger companies for a significant premium.
IMO shorting small float unknown companies used to be a way for some to make a profit without taking on too much risk. With some of the recent buy out offers, IMO that assumption is no longer true. Sell the news may not always be the case as it was in the past.
Magal Receives an Additional $4.5 Million Order for the Perimeter Intrusion Detection System Along the Northern Border of Israel
Tuesday November 21, 5:45 am ET
http://biz.yahoo.com/prnews/061121/uktu005.html?.v=89
Magal Announces a US$1.6 Million Order to Protect an International Airport in Europe
Thursday November 16, 5:30 am ET
http://biz.yahoo.com/prnews/061116/ukth007a.html?.v=1
Magal Opens Office Near Washington DC to Focus on Homeland Security Solutions
Thursday November 9, 7:00 am ET
http://biz.yahoo.com/prnews/061109/ukth011.html?.v=79
*****
Magal IMO reminds me of Invision, and the company seems to be starting to be taken more seriously. No contracts have been released, but some seem to think MAGS might have some involvement with the security fence that will be built along the US-Mexico border.
I imagine Pier compared to WSM is like Nordstrom being compared to KMart.
LOL! Now you have the right idea!
I realize that this board is for technical charts, so my comments were only made as OT since IMO these two stores are not in the same category. Thanks for all of the charts with technical comments that you post.
OT - WSM (another home furnishing store down now along with a dismal year for PIR)
Justin, your charts and some of your comments have been interesting to read. However, to mention Williams-Sonoma as possibly being in the same category as Pier One shows me that you spend absolutely no time shopping and actually looking at merchandise in stores.
In my mind, Pier One sells very low cost products and has almost non existent customer service. Williams-Sonoma features high end quality cookware, with excellent customer service. WSM also owns Pottery Barn and Pottery Barn Kids.
WSM was downgraded before earnings are released tomorrow. IMO they should have a fairly strong report. Some of us know how to "shop until you drop"....and IMO quality and customer service will always be critical when deciding where to spend money.
Libbyt (I do not have a position in WSM short or long)
Magal Security Systems, Ltd. 2006 Second Quarter Results Release Scheduled for Monday, July 31, 2006
Thursday July 20, 9:40 am ET
Conference Call Scheduled for July 31, 2006 at 10am EDT
YAHUD, Israel, July 20 /PRNewswire-FirstCall/ -- Magal Security Systems (NASDAQ: MAGS and TASE: MAGS), announced that it will be releasing its second quarter 2006 results on Monday, July 31st 2006, before the US market opens.
The Company will also be hosting a conference call on the same day at 10:00am EDT. On the call, Mr. Jacob Even-Ezra, Chairman of the Board & CEO and Mrs. Raya Asher, V.P. Finance & CFO will review and discuss the results and will be available to answer investor questions.
To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 5 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.
US Dial-in Number: +1-866-860-9642
Canada Dial-in Number: +1-866-485-2399
ISRAEL Dial-in Number: 03-918-0610
INTERNATIONAL Dial-in Number: +972-3-918-0610
At:
10:00am Eastern Time
7:00am Pacific Time
5:00pm Israel Time
The call will also be broadcast live on the web, and can be accessed through a link on Magal's website. A replay of the call will be available for three months from the day after the call. The webcast and the replay will both be accessible from Magal's website at: www.magal-ssl.com.
About Magal Security Systems
Magal Security Systems Ltd. (Magal) is engaged in the development, manufacturing and marketing of computerized security systems, which automatically detect, locate and identify the nature of unauthorized intrusions. Magal also supplies Video Monitoring Services through Smart Interactive Systems, Inc., a subsidiary established in the U.S. in June 2001. The Company's products are currently used in more than 70 countries worldwide to protect national borders, airports, correctional facilities, nuclear power stations and other sensitive facilities from terrorism, theft and other threats. Israeli-based Magal has subsidiaries in the U.S., Canada, the U.K., Germany, Mexico, Romania and an office in China.
Company Contact
Raya Asher, CFO (magalssl@trendline.co.il)
Magal Security Systems
+972-3-539-1444
Investor Relations Contacts
Ehud Helft (Ehud@gk-biz.com)
Kenny Green (Kenny@gk-biz.com)
Gelbart-Kahana International
+1-866-704-6710
http://biz.yahoo.com/prnews/060720/ukth007.html?.v=70
Ahead of the Bell: KLA Tencor Declines
Friday July 21, 9:21 am ET
KLA Tencor Declines With Merriman Downgrade on Expectations of Sales Slowdown
NEW YORK (AP) -- A Merriman, Curhan Ford & Co. analyst downgraded semiconductor manufacturing equipment maker KLA Tencor Corp. Friday, citing an expected downturn in orders for the equipment sector for the December quarter.
Shares fell 50 cents to $39.43 in premarket electronic trading on the INET exchange after closing at $39.93 Thursday on the Nasdaq.
Analyst David Duley downgraded the San Jose, Calif.-based company to "Neutral" from "Buy," noting that one of the best-performing companies in the sector, Fremont, Calif.-based Lam Research Corp., has already issued a sales warning.
"Given Lam's historic and projected share gains, this was the wrong company to acknowledge it would see 'a down order quarter,'" wrote Duley.
He also said his firm would be "stepping to the sidelines" on the company until its option issues were resolved. The Securities and Exchange Commission is currently probing KLA's past stock-option granting policies. The SEC and Department of Justice is investigating about 60 companies for possibly backdating stock options to reap a higher take for executives.
http://biz.yahoo.com/ap/060721/kla_tencor_ahead_of_the_bell.html?.v=1
This article along with options expiration probably influencing trading today.
From your post on KLAC
http://www.investorshub.com/boards/read_msg.asp?Message_id=11980706&txt2find=klac
It looks like KLAC has traded twice in this range in the last 10 days since you made this post.
On 7/12 the high was 42.56 and the low 39.05 and on 7/19 the high was 42.40 and the low 39.88.
Thanks for posting that chart!
Beefing Up Israeli Border Security
John Dobosz, 07.19.06, 6:00 AM ET
Stock Of The Week
Kenneth Reid, editor of Spear's Security Industry Analyst, recommends buying shares of Israeli security and protective services company Magal Security Systems.
Magal develops, manufactures and sells integrated video monitoring and motion-detection systems that are typically employed in perimeter security. Its products are used in 70 countries and used to protect national borders, military bases, power plants, pipelines, prisons and airports.
Before the open of trading on Monday, Magal revised its 2005 income statement to reflect the cancellation of a turnkey project by an Eastern European customer. The change resulted in the company posting a net loss of $2.3 million rather than a profit of $1.1 million. Revenue for 2005 also was revised downward to $61.3 million from $68.6 million.
"I think that the bad news is already out on this matter and that how the company accounts for it is immaterial," says Reid. "MAGS has never been an earnings powerhouse anyway, and is more of a story stock."
The story lately is the upsurge in violence in Lebanon and Israel, which last week boosted shares of Magal by more than 20% on huge volume, closing the week at $11.01. In the first two trading days this week, MAGS has given back more than a dollar of those gains, closing Tuesday at $9.76.
Special Offer: There's always a bull market somewhere. During times of global strife, it's in security and defense stocks. Click here for more than half a dozen bomb detection and security firms set to soar in the current climate of terrorism and global turmoil in Spear's Security Industry Analyst.
"In times of crisis, traditional cause-effect correlations break down," says Reid. "Oil has been peaking, but the XLE and OIH are trading considerably below all-time highs. Why? Fear is a more powerful motivator than greed because survival comes first. As a species, we are programmed that way, which means fear reactions are also less rational and more instinctual. Frightened investors pull the sell trigger first and ask questions later. This process repeats ad infinitum in the markets and is the main engine that creates value."
Because Magal bucked the trend and, in fact, benefited from the fear, Reid believes it to be a good buy candidate. "Periods of fear compress valuations and take the ‘fluff' out of story stocks. Stocks that don't fall during such periods should be high on investors' watch lists and deserve to be researched further. We follow about a half dozen security-related companies out of Israel, and MAGS was the only one that went up last week, which suggests that the stock is at a watermark level for value-oriented investors despite having a major contract canceled," Reid says.
"Compared to other ‘trash' security stocks that also rose on Thursday, MAGS is the real McCoy," says Reid. "Given the incendiary nature of the Middle East and the ‘weaponizing' of resources globally, we suspect the company's new pipeline security system will attract significant business in the future."
Magal has reliably risen during past times of turmoil, but has dropped about 30% from its 52-week high of $14.20 back in early March. "Technically, after spiking to ridiculous levels on the Madrid train explosion in the spring of 2004, MAGS has formed a somewhat flat base over the last year," says Reid. "Volume last week was the highest in 12 months. Our initial technical target is $14. I would recommend taking something off the table at those levels.
"As I said, fear is more powerful than greed and will trump it almost every time," says Reid. "Of course, there are always a few brave souls who trade unemotionally and know a bargain when they see one."
Click here for a video with more on Magal Security Systems.
Click here for more investment analysis and recommendations of security, national defense and alternative energy stocks from Kenneth Reid in Spear's Security Industry Analyst.
The investment above was recommended in Forbes Newsletters' FREE Stock of the Week e-mail. Click here to receive Stock of the Week next Monday morning, instead of waiting until Wednesday.
Send comments and questions to newsletters@forbes.com.
http://www.forbes.com/2006/07/18/magal-security-israel-in_jd_0718gurusow_inl.html?partner=yahootix
Have you looked at the options on GOOG? Wouldn't options expiration influence GOOG to trade lower before retesting the highs in GOOG?
I still hold share in MAGS, and I've continued to follow the company news. I started following MAGS at the time I began following Invision which was later purchased by GE.
The short interest in MAGS is fairly high, and the company has a small float of shares traded. IMO MAGS has always been a potential company to be bought out for their technology. As you know trading in MAGS can be erratic, and can have "Google type" of trading (wild price swings) once there is interest in the company.
MAGS recently came out with increased earnings. IMO there has been more interest due to terrorism activity and the need to protect oil production. Some mention has also be made of the possibility of border security along the Mexican border where increased incidents of problems have been reported.
Where do you think GOOG might trade before options expiration? It looks as though it might need to trade higher to meet the maximum pain theory? Thanks.
"Seems kind of dumb to make a downgrade two days before finding out how the company for the fourth quarter"
I couldn't agree more with your statement!
Netflix Announces Webcast of Fourth Quarter 2005 Earnings Conference Call
Thursday January 5, 4:30 pm ET
LOS GATOS, Calif., Jan. 5 /PRNewswire-FirstCall/ -- Netflix, Inc. (Nasdaq: NFLX - News) announced that it will host a conference call to discuss its fourth quarter 2005 financial results and business outlook on Tuesday, January 24, 2006, at 2:00 p.m. Pacific Time, following the release of the Company's quarterly financial results. Reed Hastings, CEO and co-founder, and Barry McCarthy, CFO, will host the call.
The live webcast of the conference call will be available on the investor relations section of the Netflix website at http://ir.netflix.com. Following completion of the call, a recorded replay of the webcast will be available on the website. For those without access to the Internet, a replay of the call will be available beginning at 5:00 p.m. Pacific Time on January 24, 2006, through January 30, 2006. To listen to a replay, call (719) 457- 0820, access code 7417955.
About Netflix
Netflix is the world's largest online movie rental service, providing more than three million subscribers access to over 55,000 DVD titles. Under the company's most popular program, for $17.99 a month, Netflix subscribers rent as many DVDs as they want and keep them as long as they want, with three movies out at a time. There are no due dates, no late fees and no shipping fees. DVDs are delivered for free by the USPS from regional shipping centers located throughout the United States. Netflix can reach more than 90 percent of its subscribers with generally one business-day delivery. Netflix offers personalized movie recommendations to its members and has more than 1 billion movie ratings. Netflix also allows members to share and recommend movies to one another through its Friends(TM) feature. For more information, visit www.netflix.com.
http://biz.yahoo.com/prnews/060105/sfth119.html?.v=9
"..i think the talks of a buyout at 42 with amazon were real"
I would agree with you, and IMO there are several companies who might want to buy NFLX. (Google...another possibility?)
I think that some of the sell off in NFLX in the last couple of weeks was an attempt by some of the market makers to gain shares of NFLX by "hitting" stop/loss/sell orders, as well as maybe an institutional holder taking profits? On a technical chart NFLX should have been a "sell", but IMO those who hold the stock are looking for a higher share price before they would consider being sellers of the stock.
With NFLX being on the Regulation SHO list (for a long time) shorting this stock is almost impossible, and being short with a potential buy out IMO would be very risky.
IMO NFLX will have very strong earnings when they next report. Their holiday "gift subscription" program seems to be popular, and I would think that this program will add new members.
I'm surprised that NFLX hasn't yet received a buy out offer, since IMO the offer to buy NFLX would need to increased after their end of the year earnings report.
WORD ON THE STREET • From S&P
Citigroup Starts Netflix Coverage At Buy
Says the company had good business prospects ahead
Citigroup starts covering Netflix (NFLX ) at a buy.
Analyst Tony Wible says the investment case hinges on Netflix's ability to execute on the following three factors: delivering superior entertainment value, Netflix's ability to help subscribers find good titles that they might not have otherwise been aware of, and building scale advantage that increases profitability and barriers to entry. Wible believes recent competitive threats have diminished. Despite the stock's run this year, Wible sees further upside in the shares from here and forecasts 46 cents 2005 earnings per share and 78 cents in 2006.
http://yahoo.businessweek.com/investor/content/dec2005/pi20051221_5600_pi006.htm
From the article you posted:
"That's why I'm still willing to stand by these picks -- yes, all seven of them -- for the year ahead. They have certainly performed well, with all but one smoking the market averages. But 2006 holds out the promise for even headier gains if things fall into place."
That was a fantastic endorsement for Netflix!
NETFLIX: STARRING IN MERGER STORY?
http://www.businessweek.com/technology/content/nov2005/tc20051110_143721.htm | News Analysis - By Timothy J. Mullaney and Robert Hof | NOVEMBER 10, 2005 --
After facing down Blockbuster and Wal-Mart, the online DVD-rental company may be an acquisition target -- but it won't go for cheap
It's the oldest plot in the movies: Upstart takes on the champ, wins a few rounds, gets his nose bloodied, then gets back up and wins the fight. Rocky X? Not this time. It's the story of online DVD-rental pioneer Netflix (NFLX ), whose stock is still flirting with a 52-week high set last month as its competition withers. Speculation is building that some rival will decide that, if it can't beat Netflix, it needs to buy the company.
At $28 a share, just off a recent high of about $29.50, Netflix stock has zoomed 128% this year. On Nov. 8, rival Blockbuster (BBI ) provided the latest confirmation of why, saying it lost $491 million in the third quarter, thanks mostly to $459 million in noncash charges. More important, Blockbuster said growth in its online business was flat. Like Los Gatos (Calif.)-based Netflix, Blockbuster's Web service lets consumers rent unlimited numbers of DVDs for a flat monthly rate.
The announcement by Blockbuster, which has lost about $300 million in its bid to enter the online market, is the second big step backward by a Netflix competitor this year. In May, Wal-Mart Stores (WMT ) said it would shut down its own online DVD-rental business.
TOO HIGH A PRICE? But Netflix's stock surge may also relate to the plans of a much-feared potential competitor: Amazon.com (AMZN ). Banking sources credit much of the move to rumors that Amazon had made a private, $42-a-share bid for Netflix in the past two weeks. Both companies declined to comment. Several Netflix directors privately cast doubt on the talk, however, saying it's only the latest of many rumors that have surrounded their company.
Last year, Netflix had said it expected Amazon to enter the U.S. video-rental market after testing the concept in Britain and Germany. Yet, with Amazon's British service trailing in market share in that country, Netflix now thinks Amazon will stay out of its business.
So, is Netflix really takeover bait? At some point, and some price, the answer is probably yes. Analysts are split on whether $42 a share, which represents nearly a 50% premium over today's stock price, is too much to pay. Through the first nine months of this year, Netflix posted $492 million in revenue, but made just $3.8 million in net income, as it fought off Blockbuster's marketing barrage. For next year, Netflix is promising only "at least $60 million" in pretax income.
DIFFICULT TO DUPLICATE. At $42 a share, the purchase would be at least $2.2 billion -- and could rise, depending on how many stock options are outstanding, if and when Netflix is sold. It actually may be more valuable to an acquirer a year or two from now, once the video-on-demand wars heat up. When it does happen, the buyer probably is more likely to be a media-distribution or online-content player than an e-commerce outfit such as Amazon.
With the rumored price tag of $42 a share, Netflix would be commanding about 30 times next year's estimated earnings before interest, taxes, depreciation, and amortization, Piper Jaffray analyst Safa Rashtchy says. That's pretty rich even for Internet companies: Amazon trades significantly more cheaply. But it's not all that crazy, counters Jason Avilio of First Albany Securities. Blockbuster and Wal-Mart have failed to significantly slow Netflix' growth.
Over the past year, Netflix' subscriber base grew 61%, to 3.6 million, and management expects at least 5.65 million customers by the end of 2006. That shows it's harder and more expensive than previously thought to enter the movie-rental business, Avilio says. One bearish take on Netflix has always been that some rival could duplicate the service overnight, but Blockbuster's experience suggests it will cost at least $300 million to build a profitable business.
DIGITAL DELIVERY. That means the hit to earnings from buying Netflix, while substantial, might be smaller than the reduction that would result if Amazon tried to build a Netflix-like service from the ground up, according to Avilio. "It might be twice as much dilution to build it," he says.
In any event, a Netflix-like rental plan could conflict with Amazon's goal to sell as many DVDs as possible, a strategy that generates more revenue per disk in the short run. Billy McNair, co-founder of Peerflix, an eBay-like (EBAY ) service that lets consumers trade their own used DVDs, says a business like his might be a better fit for Amazon, because its model assumes that people initially buy the DVDs that Amazon wants to sell.
That's why a Netflix takeover may still be down the road a piece -- and the buyer is likely to be a cable operator, a telecom pushing into movie delivery, or even a Web media player such as Yahoo! (YHOO ). Today, Netflix delivers its DVDs by mail, shipping them from a network of distribution centers in the U.S. The long-term threat to Netflix is that a company like Comcast (CMCSA ) or SBC Communications (SBC ) could gradually take over the movie-rental market by delivering content digitally to TVs, either via a computer link or a set-top box.
Netflix Chief Executive Reed Hastings thinks video-on-demand won't develop into a major market for several years. On Netflix' third-quarter conference call, he said the company is holding off on plans to develop a movie-downloading service of its own, primarily because the number of films that studios have licensed for digital delivery is a fraction of the 50,000 available on DVD. "We will continue to enhance our technology and infrastructure, and will be ready to quickly launch when the content climate begins to thaw, and it becomes possible to deliver a compelling consumer experience," Hastings said.
HAPPY ENDING? By then, Netflix simply could be too big to ignore -- and too juicy a prize not to get snapped up in the land grab for consumers' video-on-demand business. Any company that owns a means for moving films over the Internet could team up with Netflix to get millions of customers, as soon as the owner of the pipe can serve them all.
Hastings says by 2010 to 2012, Netflix could have 20 million customers, each already paying a monthly flat rate for unlimited movies, whether they're available on DVD only, pay-per-view, or both. Someday, Hastings will likely face the sweetest possible outcome when Hollywood and Wall Street collide: an offer he can't refuse.