Tuesday, March 8, 2011

Lights Out Netflix? Here Comes Facebook!

Facebook is not all about revolutions, although it sure seems that many in North Africa and Middle East want to nominate Facebook as the head of state after their successful ouster of the regime.

From Zero Hedge:

Has anyone seen the latest Whitney Tilson NFLX reshort memo? Because if the news that Facebook and its 600 million registered users is entering the video streaming market is true, and it appears to be, the "value inventor" should promptly forget that he topticked the market with his short cover a few weeks back, swallow his pride and actually make money. As for Netflix, the world's most ridiculous zero barriers to entry business model is about to realize why most SWOT analyses typically at least cast a casual glance at said barriers to entry. Because when there are none, you can go from hero to zero in a like amount of time. All Things Digital reports: "The social media giant is taking its first step to connect you with movies and TV shows, while collecting a fee in the process. It’s going to let users rent movies directly from the site, using Facebook Credits to pay for the transaction. First up is “The Dark Knight”, from Time Warner’s Warner Bros.. It will cost 30 credits, or $3, for a 48-hour rental, via an app the studio has built for the site. More movies, along with the ability to purchase the titles outright, are coming." And so, the race to the bottom in Netflix margins begins. Next up: we repeat our prediction that NFLX will be forced to come to market with an equity offering, which will promptly cut the value of the world's most overpriced stock by at least 33%.

Ouch. The shares of Netflix (NFLX) has been declining since February 15 after marking the all-time high the day before, and it is plunging on the news of Facebook today. It's a long way to fall, if it really starts to fall. From the 3-year weekly chart, $180 has some support, 50-MA is around $150, nice round number for support, next is $100.

I've been short AMZN since $180 or so, which is not doing great today either on this Facebook-Netflix duel.


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