Netflix Stock Slammed Unfairly?

Earlier in 2011, Netflix was a $300 stock and a hit with investors. In October 2011 it is a $77 stock and hated by almost “everybody.” It is possible Netflix finally has met a challenge it cannot surmount. But it might also be worth noting that Amazon equity also is being slammed as it clearly is making investments in its future that investors don’t like.

There are, to be sure, reasons to be concerned about Netflix. Some would argue the 75 percent loss of value in less than six months is the result of three mistakes, many will say. Among the  key events were raising fees, trying to create separate streaming and DVD-by-mail businesses and shocking investors by warning that Netflix might not make money for all of 2012 as the company ramps up international expansiion plans.

The decline follows Netflix's quarterly earnings report, in which profit and revenue were up sharply but the video-rental company was haunted by its decision to raise prices and its admittedly botched effort to divorce rentals of DVDs from streaming video services. Those moves caused more than 800,000 subscribers to flee in the third quarter and spoiled a lot of goodwill with investors. But revenue is up sharply


But some might note that a significant slide in net customer additions happened months before any of those events, in the quarter ended in June 2011. 

Investor Whitney Tilson has been buying Netflix, though. “It’s been frustrating to see our original investment thesis validated, yet not profit from it.  It certainly highlights the importance of getting the timing right and maintaining your conviction even when the market moves against you.  The core of our short thesis was always Netflix’s high valuation.  In light of the stock’s collapse, we now think it’s cheap and today established a small long position.  We hope it gets cheaper so we can add to it.” Some are buying.

And some think the panic is overdone. Watch the video.

Some might argue Netflix now is a buying opportunity. Netflix's streaming business, its future, is already at a about a $2 billion revenue run-rate, with 21 million subscribers paying $8 a month. Some might compare that to cable TV, satellite TV or telco TV, but the better analogy for the moment is HBO. The issue then is what HBO, as a stand-alone business, might be worth.

At $75 a share, Netflix's market cap is $4 billion, or two time the revenue of its product of the future. Assuming one values the DVD business at zero, the market is valuing Netflix's streaming business at two times run-rate revenue. Some would argue that is low for any company whose future revenue is expected to grow sharply. Netflix bullish case

Only 5% of U.S. Homes Do Not Buy At Least 1 Broadband Service

There’s an interesting bit of data in the most-recent Nielsen “Cross Platform” report on media behavior of U.S. consumers. The study shows that 72 percent of households buy both broadband access and a video subscription service. Broadband drives consumer spending


About 18 percent of households buy video service but no broadband, while five percent buy broadband but not video service. About five percent of households do not buy either video service or broadband.



Add it all up and just five percent of U.S. households do not buy at least one broadband service, with the dominant pattern being “video plus broadband access.”



That doesn’t mean narrowband services are unimportant, either in terms of gross revenue or profit margin. It does mean that when forecasters say the telecom business will in the future be built on broadband services, “tomorrow” already has arrived. 

How Do You Market an Intangible Product?

Some products, especially intangible products such as legal or health services, marketing advice, crisis management and other services, are very hard for buyers to evaluate, in advance of purchase. There is no physical object to inspect, so a potential buyer has to try and determine value some other way.

That's why credentials, furniture, street address, references and "experience" become proxies for value and competence where an intangible product is concerned. Even tangible products such as fashion items or vacation resorts have a huge and similar problem, namely creating a brand or mystique that helps potential buyers evaluate the product, which either is a means to another end, or an "experience."

Those are reasons why content marketing can be effective. Content marketing can help establish credentials, provide evidence of experience and knowledge and thereby reduce the "risk" a prospect faces when buying an intangible product they might not ever have used before, or which gets used infrequently.

By creating great, valuable content you are setting up your brand as a trusted expert, someone your target audience can count on. They learn that your company is one of the real experts in your industry. This helps builds your authority and trust level. Those are proxies for the product attributes potential buyers otherwise evaluate directly, in the case of tangible goods.

Content Marketing Tip: Focus on Educating Your Target Audience

Consumer Ratings, Reviews are Preferred Product Information Sources

Consumers are spending more time than ever using social media, according to Nielsen and NM Incite, a Nielsen/McKinsey company. And social media seem to be quite  influential. In fact, 63 percent of survey respondents say their "preferred" way of learning about products and services is from consumer ratings. 


Some 62 percent say their preferred method of learning about products is from consumer reviews. 


About 60 percent of consumers researching products through multiple online sources learned about a specific brand or retailer through social networking sites, Nielsen says. 


Active social media users are more likely to read product reviews online, and three out of five create their own reviews of products and services. Women are more likely than men to tell others about products that they like (81 percent of females vs. 72 percent of males). Overall, consumer-generated reviews and product ratings are the most preferred sources of product information among social media users.

How Social Media Impacts Brand Marketing

Only a Handful of Firms "Really Matter" in U.S. Telecom

If you want to know what is happening in the U.S. communications business, there really are only a handful of companies one has to follow. That doesn't mean the thousands of firms selling communication services do not matter, only that just a small number of companies represent the overwhelming number of customer accounts and revenue.

AT&T, for example, alone has more than 100 million mobile subscribers and 42 million fixed-line accounts, for a total of 142 million. AT&T has 142 Million Consumer Accounts


Verizon has about 106 million mobile customers and something in excess of 15 million voice customers, for a total somewhere in excess of 121 million. The issue is that Verizon has many customers who may buy only FiOS Internet access or FiOS video but not voice. 


Sprint has perhaps 50 million subscribers, T-Mobile USA 33 million. 

Comcast has perhaps 23 million customers, DirecTV 19 million, Dish Network 14 million and Time Warner Cable perhaps 12 million. 


The point is that one doesn't have to track many firms to capture sufficient data on where the market is going. 

IaaS Will Count for a Third of IT Resources in 2014

About 77 percent of enterprises respondents surveyed by PwC have a plan to adopt some form of cloud computing, and 64 percent said some type of cloud, including private and public, would be the best way to manage IT infrastructure in three years.


Precisely what that means for would-be providers is not quite so clear, though. 


PwC surveyed 489 business executives in an effort to understand the real state of data center management, and the results suggest both increases in traditional data center operations, "private" cloud operations and some increase in public cloud activities. But there will be a huge decline in use of traditional data center services managed by service providers. 


Traditional IT outsourcing service providers are about to see their business models and customer value propositions disrupted. 


But the essence of cloud computing is a move towards highly standardized racks of commodity servers and a software environment that together make for a highly efficient use of resources. Who needs to outsource to a third party when such capabilities are available?

"We have seen major technology shifts in the data center in the past," says David Stuckey, PwC's US leader of its data center infrastructure practice. "These shifts in reality have just added to the mix in the data center, increasing complexity and cost."

Cloud computing, when done right, has the potential to actually replace, and not just augment, legacy environments while adding value by reducing costs and increasing agility," says Stuckey. 

Private cloud is infrastructure operated solely for a single organization, whether managed internally or by a third-party and hosted internally or externally.^[43]

They have attracted criticism because users "still have to buy, build, and manage them" and thus do not benefit from lower up-front capital costs and less hands-on management,^[44] essentially "[lacking] the economic model that makes cloud computing such an intriguing concept".

IaaS Will Count for a Third of IT Resources in 2014

Coca Cola "Rules" Social Media

Coca-Cola ranked as the world’s top brand, with a following on Facebook of 34 million fans, growing at a monthly rate of nearly three percent, posting seven times a month, each garnering more than 235 comments and nearly 1,750 “likes,” according to Covario.

The top 100 leading brands on Facebook includes Hyundai, Disney, Bayer, HP, Victoria’s Secret, Best Buy, Samsung Mobile, Dr. Pepper and Macy’s among the top 10 brands using Facebook effectively.

Perhaps significantly, 35 percent of respondents say “driving sales” is the number one priority for social media programs, but 47 percent see the goal as driving engagement and driving brand awareness, and another 14 percent say they are “driving friends.”

Overall,  65 percent are using their social media programs, and their Facebook pages, to drive “soft” conversions, not explicit sales. Those results point up the fact that social media programs can have multiple goals. But the findings also illustrate the tension posed by social media. To the extent that the purpose is “community” or “socializing” or “fun,” does lead generation interfere with those purposes? If not, how can lead generation be reconciled with the other values? 

The study also has other implications. Traditionally, media efforts by brands have come in clear buckets: paid media (advertising), earned media (public relations, media relations, press relations) and owned media (brands acting as publishers and content creators on their own sites). 

The Covario study suggests top brands fund social media programs partly out of advertising budgets, partly out of PR budgets and partly out of new budgets. Both in terms of practice and internal thinking and budgets, social media is a new mix of outbound communications, marketing and sales promotion.

In many ways social media is a replacement for traditional advertising, public relations and marketing. In other ways it is a new blend of tactics. The rather clear implication is that competencies and skills also will have to change, both on the part of brands and other practitioners in the ecosystem.

At one level, the changes are "merely" about the ways brands spend money. At another level, the changes also reflect and contribute to a change in our understanding and practice of media. 

Historically, the growth of media has been fueled by advertising. If advertising support changes, so will media. In simplest terms, if traditional media has been supported by advertising, and advertising spending shifts to social media, there will be less traditional media and more social media.

Facebook users are “active” users, or using the application  more than four times per week. Less than 40 percent of Twitter users are considered active users, by way of comparison.

Facebook counts nearly 50 percent of its user base as power users (use the site at least once per day). A study done by comScore last year showed that Facebook occupies nearly 10 percent of the user time online globally. Users were spending an average of 450 minutes per month on the platform, compared to 230 minutes on Google, for example.

Facebook users number 800 million as of the time of the writing, more than any other social media platform. Twitter is estimated at 245 million users and LinkedIn, the key professional social platform, 120 million users.

Facebook tips for brands