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Dawson James Securities analyst Justin Colatosti and Pacific Crest Securities analyst Andy Hargreaves debate the outlook for Netflix and whether inves...
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OK let's follow it so Merrill Lynch downgrade shares of Netflix earlier this month legendary investor Whitney Tilson did the opposite.
He changed his very negative view on the video streaming company after famously betting against it.
Now Whitney Tilson loves it has Netflix turned -- corner and which corner.
It's time for an -- ratings -- we're joined by two analysts.
In -- by corner -- heart rates from Pacific Crest Securities he has a solid buy on the stock.
And in the cell corner just in college -- to heat is from Dawson James securities and says sell sell sell gentlemen thank you so much for joining us.
Andy this stock while up.
-- about 20% or so month to date is -- dismal performer over the past year tell me why you like get.
We like it because we think that subscriber risking can still grow and we think the margins can expand and we think international as an investment rather than just a professional myself.
OK so you think can remember you don't become more money do you think international as a great opportunity -- the book value that's assets plus liabilities is is.
If for example folks what he's saying is if you -- to sell it -- to sell the entire company if it's still the stock has.
Really quite cheap at this point can -- correct.
Hello I'm saying is I think you're getting the stock discounted right now because international is losing money but if -- if you look at that as an investment rather than just the.
Perpetual loss that's something that could turn positive in benefitting over time.
Justin is not buying this argument give you three reasons -- why you disagree with -- and you've got a totally opposite columnists.
-- is well above glad to be here.
I would just say that you know we believe that -- mentioned -- margin expansion we believe that much of the street holds that view.
And frankly we disagree.
At this point we believe that up for Netflix to grow their subscriber base we believe that at the margins that's very closely linked.
To new content acquisitions.
And as such.
We tend to -- caught that is more of a variable costs as opposed to a fixed costs and believe that that will constrain.
Margins going forward and with a potential upside out to the stock.
And then specifically -- in terms of international growth.
We we view internationalist -- -- and everything else when Netflix moved into Canada was a very favorable market where they had much name.
Recognition already and even candid took several quarters to to reach breaky heart -- in much of the international market.
Netflix faces additional issues up for example in Latin America with lower broadband penetration rates.
And in other parts of the world with higher levels of piracy right right what we see in the united.
OK let me jump back to Andy -- an Andy -- a look at all that's going on out there I I get nervous about all the competition you hear that Verizon's out there you've got Amazon starting to compete they struck the deal with ethics which is.
A cable network that has deals with a lot of studios.
What do you think about the competition and.
Well we're always worried about competition that you got all those guys up together right now and you have a subscriber base that's about a third as big as Netflix is so.
They have massive scale advantages -- I kind of agree with just and then that content is sort of variable to a certain extent then.
So far they've managed an extraordinarily well generating 50% plus incremental contribution margin self.
I would say those things that make the business -- good.
I wanna bring up Whitney M and Justin may bristle at this because it Whitney Tilson reversed what had been sort of -- just in college now really likes Netflix and here's what Whitney Tilson is a pretty pretty well known investor said there -- a lot of talk about competitors.
But I don't see any detectable competition showing -- do you Justin is he wrong why.
What think when you view competition not in regards to Netflix -- the look at it on the margins.
And not only does there's additional competition not make acquiring -- an additional mark subscriber up potentially more expensive.
-- but it also creates a additional competition in terms of bidding on contact.
You know for example Amazon.
Is now live show and if they have a greater commitment to streaming and I -- a lot of example that they now also.
I'll offer the same ethics -- catalog of contents that's one of the Staples of Napoli.
-- OK and let me jump in here about content itself original content that got the show coming out that's going to be Netflix only called house of cards with Kevin Spacey.
-- is that really going to be a driver are being eaten if you showtime as an example showtime a couple years -- didn't have original programming now what does.
They've won -- gloves they've won Emmys they've done extraordinarily well -- one of the most valuable cable networks could Netflix really take on everybody with original programming.
Phone yes certainly cut and I just wanna make a point about competition to I think there's a misperception in all of this that this is a zero sum game and that if you subscribe to -- you can't to the other thing that's totally wrong we see that in our survey data.
And if that if an -- original content comes out and it's good that'll be even more the case found that people subscribe to that -- for those shows.
-- one last question 'cause we got to go but just and I'll let you finish the big question could Netflix be -- acquisition.
I'm thinking by Amazon Justin yes -- no.
Well there it you know why I don't believe that of these levels that baffled that Netflix would god be an acquisition target for Amazon mostly in terms of when you look at the costs it would likely take to a to acquire -- -- Amazon could likely.
You know practically offer.
A free subscription to their service for six months.
Acquire new subscribers and be able to build a subscriber base by as large of Netflix is for a fraction of the cost.
Justin call -- costly and Andy Hargreaves great to have you in our ratings -- and he's got a buys Justin's got a cell thanks gang really appreciate it.
Thank you listen thanks any time fifty.
