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 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.

Looks like I’m Posting a lot about Microsoft lately. Miscrosoft missed analyst estimates and revenues were down 17% and earnings down more than 1.2 billion$ (yes that is billion) as compared to last year.

Maybe Vista is to blame, maybe the bad economy though Intel’s results would indicate otherwise. Every few weeks I hear about something new from Google. I just got invited to Google Voice and recently discovered Google Wave. The only thing new and exciting I’ve heard from MS in the online front is Bing. I did make a post a few weeks back criticizing Microsoft but they did one good thing. Released the Win 7 beta for everyone to try and also establish that it really is not as bad as Vista.

In related news, Amazon posted bad results too. MSFT + AMZN both posting bad results is driving the markets down today but the Dow is still over 9000. A few more bad earnings and we might fall below 9000 once again. A few more good earning and we might stay above for a few months.

If you are looking at investing in one of Amazon or Microsoft after they fall today, my pick would be Amazon.