It is pretty ironic that Netflix disrupted Blockbuster, causing Blockbuster to go the bankruptcy route, and ultimately On Demand is already disrupting Netflix as we speak. This is a Sea Change in the space, the worm has turned because of the market arrival of On Demand through multiple alternative platforms. This deflationary trend means all media content is actually a depreciating long term asset base.
Ultimately content is gravitating directionally towards the “Free Zone” globally, the only value added will be in interface convenience, and organizational platform offerings of “commoditized content” for the upper end of the disposable income demographic. Given Netflix`s balance sheet they are a depreciating asset for any acquirer over the next 10 years, a perpetual write-down so to speak.
If Netflix remains a standalone company their stock will drop below $30 a share, and they could even go the bankruptcy route given their debt obligation trajectory structure, and the Sea Change that we think is just about to hit the entire market landscape for Netflix. In short, the Disrupter got Disrupted!
On April 9th 2021, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. Q1 2021 hedge fund letters, conferences and more Read More
They ultimately are the next blockbuster, the next DVD sales, the next CD sales – they are an archaic, antiquated dinosaur in the fast moving Moore`s Law technologically changing world that we live in, and they barely got started. Moreover, Netflix`s management will be the last to see this Sea Change until it is too late in our opinion.
They should be selling high right now at any price before the overall market realizes what we do, because by the time the market gets it, collapsing valuations will inevitably have management riding this company all the way down.
With lowered management expectations always being one step higher and behind the dropping market valuations of the stock – the inevitable ‘ride-down’ ends up in what I refer to as the Bag Holder Syndrome of a highly overvalued asset in a perpetual depreciation cycle on the way down.