Among the biggest losers in Tuesday's early trading are
Netflix (Nasdaq: NFLX)
The bad news keeps coming for DVD-by-mail pioneer Netflix. Rival
Amazon.com (Nasdaq: AMZN)
has lined up an agreement with Epix, a consortium of major movie
studios, to again access to many of the same film titles to which
Netflix used to have exclusive access.Shares are off roughly 10%
today, officially disgorging all of the gains seen after shares
soared in 2010 and 2011.
Netflix's decision to rapidly embrace streaming at the expense
of its core mail delivery business still stands as one of the
oddest moves ever taken by a fast-growing company. As I wrote
in this article
back in April, "The DVD-by-mail business has huge barriers to
entry. The streaming business does not."
At this point, Netflix is on a course forcommoditization .
Within a few quarters, at least three major players will host very
similar streaming platforms (Netflix, Amazon and
Coinstar's (Nasdaq: CSTR)
Redbox)) and in a few years time, companies like
Comcast (Nasdaq: CMCSA)
might join the fray.
The solution for Netflix is painfully simple -- and highly
unlikely: Take advantage of an existing impressive array of
distribution centers and emphasize the unique virtues of the
DVD-by-mail platform and de-emphasize the increasingly commoditized
video streaming business. Benefits include a much deeperinventory
thanks to less restrictive licensing agreements than streaming, and
higher gross margins from the DVD-by-mail customer.
Orbitz's cash crunch
Are investors anticipating a majorbalance sheet blow up for
travel website operator Orbitz? It's unclear why shares are off
roughly 10% today (and off nearly 40% since the end of July), but
any time you see a stock slip below $3, your first look should be
at the balance sheet.
Once there, you'll find that Orbitz has $170 million in cash
against $750 million in debt. Here's the rub: $336 million in that
debt is classified as short-term, meaning it comes due in 12 months
or less. Orbitz must either raise fresh cash or re-finance that
debt to keep the lenders at bay.
Orbitz is already an also-ran in a crowded field, and now
Google (Nasdaq: GOOG)
is set to create more noise. Recent acquisitions of Frommers and
various travel search engine software sites imply that Google has
plans to become a dominant player in travel search and booking.
That's potentially unpleasant news for firms like
Priceline.com (Nasdaq: PCLN)
Expedia (Nasdaq: EXPE)
, but perhaps devastating news for Orbitz, which simply lacks the
resources to fight this battle.
For investors that like to find "terminal shorts," or stocks
that can go to zero, Orbitz should pop onto your radar.
Action to Take -->
Both of these companies are hurting, though Netflix is bound to
find support somewhere near these new lows, as there are still a
lot ofbullish analysts that will pound the table for this stock.
Orbitz, on the other hand, looks to have much more downside. The
stock may not necessarily become a terminal short if a potential
buyer snaps up the website. But with roughly $500 million innet
debt to be paid off, it's not clear how much cash would be left
over for shareholders anyway.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of GOOG in one or more if its "real money" portfolios.