We should never blindly copy any investor's moves, no matter
how famous, talented, or successful the investor. Still, it can
be useful to keep an eye on what smart folks are doing. 13-F
forms can be great places to find
intriguing candidates for our portfolios
For example, a glance at the latest quarterly 13F filing of
Tiger Global Management shows that its second-largest new holding
, with its position representing 2.2% of its portfolio and its
19th-largest position. Tiger Global's reportable stock portfolio
totaled $7.9 billion in value as of June 30, 2014, and contained
just a few dozen stocks. Indeed, the top 10 holdings make up
about 58% of the overall portfolio's value.
Why buy Netflix?
Netflix has been making a lot of smart moves lately, and growing.
It recently passed the 50-million-subscriber mark (with 36
million in the U.S. and 14 million abroad), and it has been
into new markets abroad, too, where many economies are growing
more briskly than ours. In the third quarter, it plans to
launch in France, Germany, Belgium, Luxembourg, Switzerland, and
Austria. Some expect Australia and New Zealand to follow soon
solid second quarter
, Netflix's revenue surged 25% year over year, with earnings more
than doubling. (International revenue soared 85%.) It has become
not just a content deliverer, but also a content creator, with
highly successful original programming such as "Orange Is the New
Black" and "House of Cards." Its business model bodes well, too,
especially now that its more-costly-than-streaming DVD-mailing
service is shrinking. With its focus on streaming, it can pay a
lot to secure a lot of content, but those fixed costs will be
spread out over more and more paying customers, boosting profit
margins. Also helping profitability is its recent
$1 price hike
, from $8 to $9 per month. The fact that this increase didn't
seem to get in the way of subscriber acquisitions reflects strong
pricing power and customers seeing value in its offerings.
Why sell Netflix?
All that is quite exciting, but Netflix has its share of bears,
too, with reasonable concerns. For starters, there's the fact
that shares of Netflix have surged more than 65% over the past
year and have averaged annual growth of 41% over the past
decade. Thus, its P/E ratio is a steep 178, while its
forward-looking P/E is a still-lofty 72 . You might argue that
its rapid growth justifies the company's valuation, but Netflix's
P/E, price-to-book, and price-to-sales ratios are all above
its five-year averages.
It's not without competition, either, including new rivals
such as Shomi in Canada.
offers substantial streaming content for free to its Prime
members (while charging them and others for lots of other
content) and now even HBO Go is becoming more of a threat as
content to its previously just-HBO-generated content. Worse
still, Amazon and Time Warner are joining forces. (Netflix
subscribers outnumber HBO's and those of the Time Warner premium
Another problem Netflix has faced is connectivity, as it has
had to pay
to secure faster streaming for its customers. The
cost of content
is also an issue, as it's huge and getting huger. In the
company's last quarter, the cost of revenue, which is mostly cost
of content, represented 68% of revenue. Still, that's down
from 71% in 2013 and 73% in 2012, so while the absolute number is
growing, it's shrinking a little proportionately.
, but also considerable risk. A lower price would compensate for
some of that risk. Risk-averse investors should steer clear,
while others might want to keep the stock on a watchlist, waiting
for a pullback, or they might want to buy portions of a desired
full position over time.
Here's one more way Netflix is profiting...
You know cable's going away. But do you know how to
profit? There's $2.2 trillion out there to be had.
Currently, cable grabs a big piece of it. That won't last. And
when cable falters, three companies are poised to benefit.
for their names. Hint: They're not Netflix, Google, and
This $8 Billion Money Manager Has Bought Netflix,
Inc. Should You?
originally appeared on Fool.com.
Longtime Fool specialist
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shares of Amazon.com, Netflix, and Verizon Communications. The
Motley Fool recommends Amazon.com and Netflix. The Motley Fool
owns shares of Amazon.com and Netflix. Try any of our Foolish
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