Parchayi.com – Personal Finance Simplified

History of Netflix in a nutshell:

1. DVD By Mail
2. DVD By Mail with Streaming Added
3. Streaming with DVD By Mail Added
4. Streaming and DVD by mail separated

This shows how Netflix completely changed their business model from being a DVD by mail company to a streaming company. Step 3 to Step 4 happened so quickly that Netflix pissed off a lot of its customers and investors and wiped out more than half the value of the company.

Here is my take on their logic. Netflix wants to be a streaming company because streaming is the future. But at this time nobody wants to give them content and those who would give them content want to get paid by number of subscribers.

Netflix: We want your streaming content
Content Provider: How many subscribers you got?
Netflix: 25 million
Content Provider: We want $x/subscriber
Netflix: But a lot of our subscribers don’t stream
Content Provider: But they can
Netflix: But they don’t
Content Provider: Not my problem

At this point a bulb goes off in CEOs head. Ooh what if I could cut that number in half?  What if I can get the non-streaming folk out of the equation? Let’s split the business completely.

Some Customers: We like to do both and you’ve screwed us
Netflix: BooHoo
Customers: Your streaming selection sucks and your DVD by mail is worse than blockbuster and I can also go to redbox. Bye Bye Netflix
Netflix: We’re sorry (read – we’re really not).

A link to someone who explained the customer perspective better than I can

My Take: Netflix had something nobody else had – streaming and DVD by mail and both combined at a reasonable price. Now Netflix will compete with Blockbuster (aka Dish) on the DVD by mail front and Blockbuster doesn’t have a stupid 28 day delay on new releases yet and does not charge extra for Blu-ray either. It will compete with Amazon for subscription streaming and Amazon Prime also gets you free two day shipping on products fulfilled by Amazon. DISH plans to announce a new streaming service on Friday too. Then there are Redbox, iTunes and Amazon rentals. So instead of having no competitors, Netflix now is competing with everyone. And some of those have deeper pockets and more resources than Netflix does. At this point in time the only advantage Netflix has is universal device support but that is nothing a few dollars and a few software updates cannot fix. I wish them luck as I stick with my Blockbuster by mail plan and hold off on streaming. So far Blockbuster has grandfathered me in to my plan and rate even though it is no longer available to new customers. Maybe after Friday DISH will have what Netflix customers had – a discount on streaming and discs combined.

The only thing that AT&T iPhones can do over Verizon’s is simultaneous talk and data. Otherwise Verizon has the better offer. Unlimited data, like I currently enjoy on my Droid X, 3G Mobile hotspot available (probably the same deal as the Droids) and Facetime over 3G.

But with LTE devices around the corner, will the iPhone do as well as analysts expect? My guess is it will. I know a lot of people who suffered with AT&T when the original iPhone launched and have been suffering for years as they upgraded their iPhones with bad service. But they wouldn’t give up their iPhones.

Disclaimer: Own AAPL and VZ

I’ve been following all the product announcements at CES and amongst the major players, the most interesting devices are both from Motorola - the Motorola Xoom tablet and The Motorola Atrix phone. Both these are one step ahead of everything else out there.

How or why the Atrix landed on AT&T instead of Verizon first is surprising (maybe due to the Verizon iPhone rumors) but it should hit Verizon soon as the Droid Bionic. Anyway after the split from Motorola into Motorola Mobility, the flaling company is in a lot better shape. Not only that, the company has been doing very well with their lineup of android phones.

And the next two monster devices should keep that momentum going. The iPhone is expected to hit Verizon and that could provide a boost to both Apple and Verizon. It is possible that the news is probably mostly baked into the stocks already and if you are from the buy on rumor, sell on news camp, you might want to be prepared to dump those tomorrow.

I’m holding on to my AAPL holdings for atleast a little while more. I might add some Verizon – the 5.5% dividend looks good even though it is a lot less than the 7% just a few months ago before the fast rise of Verizon stock prices.

Disclaimer: I own no stock in any of the companies mentioned in the article except Apple. I do own a Droid X which so far has been great.

I’ve been following the Apple “Back to Mac” event live on blogs and news sites and just saw the new 11.6″  Macbook Air. It is a small notebook and starts at $999 – which is the price of the current lowest end Macbook. So it meets my definition of netbook – a small and light notebook that is available in the price range of a low end laptop.

I was disappointed that OS X Lion will come Summer 2011. That is a long way away. But the app store coming in 90 days is good news. If you’ve been following my Apple posts, I sold a third of my Apple stock when it reached $280 and I plan on selling another third at $375.

With the way Apple has been performing, I would say the stock is currently a buy but I’m uncomfortable with being so heavily invested in a single company. So I’m not adding to my Apple holdings anytime soon.

Thanks to it’s meteoric rise in the last year, Apple is now Parchayi and my largest single investment. I was considering taking some profits when it crossed $250, which it did today after the monster quarter of nearly doubling earnings to $3.1 billion ($3.33/share) from 1.6 billion ($1.79/share) same Q last year on a 50% increase in revenues to $13.5 billion from $9.1 billion last year.

The iPad did not start selling in the last quarter and is not reflected in the above numbers. Mac shipments rose 33% and iPhone sales were 8.9 million (worldwide), a lot more than expected and even more than the holiday quarter sales of 8.8 million.

Apple doesn’t comment on rumors but it seems like the question to ask about a CDMA iPhone on Verizon is  not if, but when. Also with the next iPhone (iPhone HD?) in the works with a rumored release in summer and iPad there is no telling what earnings will be like next quarter.

Apple says that margins will be lower next quarter thanks to lower margins on the iPad and lower margins on “future product transition”. That can only mean the new iPhone. Margins are generally always lower on newer products until parts become cheaper as volume increases.

I’m now reconsidering holding on until Apple hits $275 to sell about a third of my holdings. The next iPhone seems to be finally catching up with other phones (HD2, Droid, Nexus One, Incredible etc.) in many hardware specifications where it was lacking such as flash for the camera, higher resolution screen and more.

There are things I don’t like about Apples ecosystem such as it’s fight with Adobe, resistance to Flash, arbitrary app store policies etc. but these don’t seem to be putting a dent in the adoption of the iPhone or iPad. Forced use of Macs to develop for the iPhone is another thing I don’t like but as far as Apple goes that is a great way to sell some more Macs.

For the next quarter AAPL’s guidance is $2.28 – $2.39 a share on revenues of $13 billion – $13.4 billion. Apple is known to provide extremely conservative guidance and has beat its guidance for as far as I know at least five years (don’t quote me on that). Analysts were expecting at $2.70/share on about $13 billion. It is quite likely that Apple will handily beat both estimates unless iPhone sales drop significantly on expectations of the launch of the new iPhone.

As soon as the event started the stock started dropping but picked up steam as the event went on, especially after the pricing was announced. As a stockholder I am happy with this device. It is everything that was expected at a cheaper price than expected. The most expensive version is $829, well under $1000 and the cheapest starts at $499.

However I’m slightly disappointed that there were no announcements other than the iPad. No new iPhone. No news about ending iPhone exclusivity. The good part was that the iPad is unlocked so you can use it with any provider, not just AT&T and the web browsing deal with AT&T is good.

As a consumer, I would wait for the iPad 2.0 because this version has no webcam, no real connectivity except wireless (aka not so hot for presentations, connecting to TV etc.) and no integrated memory slot.

I’m not sure how serious a competitor this is to the kindle because I’m not sure how many people use the Kindle’s data connection to download books. If the data connection is not that often used, then the $499 version is a serious threat to the Kindle because it is full color, has a bookstore and much more than the Kindle or other book readers can possibly offer. However I’m not sure how the display does while reading (it is 1024*768 = blah) as compared to the eInk display on most book readers.

Overall I’m happy with the pricing and options and I think the stock is headed up. But not up as much as if Apple would end exclusivity with AT&T and bring in Verizon (or Sprint, or even T-Mobile if they want to stick with GSM) on board for the iPhone and the iPad.

Oh and the device uses Apples brand new 1GHz A4 processor, a result of their acquisition of PA Semi. From the demo it seems like this is a perfectly capable processor maybe more so than the other 1GHz processor out there – Qualcomm’s Snapdragon. Maybe the next iPhone will run on one of these? If they can make this processor maybe they can switch Macs to their own processors in the far future?

Apple Stock is up over 4% today after the company sent out official invites to an event on Jan 27. The invite only said “Come See Our Latest Creation”.

Speculation is that Apple plans to release a tablet PC, possibly called iSlate. However rumors are that Apple is also planning to sell eBooks on the device and is in talks with Harper Collins. Also rumors state that Apple’s terms will be better than the terms offered by Amazon on the Kindle.

Analysts already have predictions on the earnings potential of a so far not announced device at $1/share.

Apple is probably the only company that can create so much hype about an unknown future product. For all you know it could simply be an ebook reader. It is also expected that Apple will announce a new iPhone OS and a new version of iLife.

Should you buy Apple stock now? Maybe you should wait to see how revolutionary the new device is.

Disclaimer: AAPL stockholder here. But no Apple products.

The Nasdaq is up almost 50% this year while the Dow is up almost 20%. Tech stocks are reporting stellar earnings with Intel, Microsoft, Amazon, Apple, Google amongst others all beating estimates.

If the trend continues, 2009 will really be the year of the tech stock. And it isn’t even really that much of a bubble. Many tech stocks have non stellar P/Es. They are still higher than the S&P average but maybe justified considering the performance. INTC had a dismal last year which drove it’s trailing P/E to around 50. But now it seems to be back on track and has a forward P/E of only 13.5! Google has a forward P/E of about 24, Apple about 26. Amazon has the highest amongst the P/E ratios at 46 but as long as the recession continues, Amazon will probably continue to beat expectations as more shoppers turn to online shopping for more items.

Walmart.com, my new favorite destination for online shopping with free site to store shipping and prices that often beat Amazon, even after tax and the simplicity of returning to store, great customer service also can’t seem to affect the Amazon juggernaut much.

Windows 7  is selling like hot cakes and if Windows Mobile 7 is even a thousandth as successful as Windows 7, we should see Microsoft making some headway into the Mobile market. Really the best phones are either running Android or Windows Mobile and the current iPhone has nothing on them except the App Store. Expect both Android and WinMo to catch up quickly.

What can I say, if you can stomach the risk, wait for the excitement of  the current quarter die out and get some tech stock for yourself during holiday season.

Disclaimer: Parchayi and me own AAPL, INTC and GOOG stock.

Intel and Google, both companies that I own stock in, both recently reporting. Intel reported spectacular results on Tuesday (as compared to analyst estimates and the previous quarter, still below last years results). Intel also upped it’s guidance. Positive news from Intel lifted the market up.

Google was the next to report and even though Google made it’s biggest profit ever, growth was the slowest ever. Google also had some fewer employees than last year. Also Google’s profit was more a result of shaving off expenses and not from increasing revenues. This was a disappointment that dragged Google stock slightly lower.

Apple (I own and the stock is finally approaching my average buying price), Microsoft (don’t own) report next week. Positive earnings are expected from Apple and the stock is hitting new 52 week highs. Micrsoft, not so much even though Windows 7 might cause an upgrade cycle.

In any case, some good some bad, overall the picture is neither good nor bad. Just so so. Personally my expectations are for tech stocks in general to be sideways or slowly go upwards. I have been wrong before and I probably wil be wrong again but I just don’t have very high expectations in the near future from the market overall. Next year might bring some better news?

Over the last few weeks, the Indian stock market skyrocketed after the elections and most of my Good Till Cancelled orders for buying INP are of no use now. I missed the opportunity to buy then and I might get in slowly at dips.

One stock I did acquire is Apple. Even though it is still below my average buying price, it is very close to breaking even and might be one of the few gems that might make some money for me going forward. Even though I own no apple products, I see everyone around me has them. At tech meetings at UVA, I see half the people carrying iPhones and I seem to be the only one with an HTC Touch Pro (or any WinMo phone for that matter). People will live with poor service form AT&T and no 3G coverage but they still want their iPhones. I went to an iPhone development meeting and it turns out you need a Mac to develop apps for an iPhone! And everybody wants to make apps for iPhones. So indirectly that is a driver for Mac sales.

My hopes are on a recovery of the stock market over the coming years and I switched from a state pension plan to the University’s own retirement plan (about 10% of salary is put in your account and fully vested immediately with no matching requirement from the employee). It costs the University less than the state pension plan (for which the University contributes just over 11% – 5% goes to you, vested in 5 years and the remaining 6.something% goes to the state)