I always look for incremental changes in things companies say from quarter to quarter in their SEC filings and conference calls.
I stumbled on one from Netflix’s last call that, as nuanced as it may be, could be an important clue about what management is thinking. And I’m not convinced that analysts, who are only allowed to ask questions via email, picked up on it.
Had they listened closely, they would have heard a question about the forecast for long-term operating margins on the burgeoning digital-only side of the business—whether they would match today’s overall margins of around 12 percent.
CEO Reed Hastings replied: "You know, the long-term margins are really driven by competition, because that really influences the pricing. So, you would have to tell me what the competitive environment is to guess at what the long-term operating margins are. It will be again, significantly influenced by the amount of competition and at this point we don't know what that will be.”
Rewind to the quarter before and a question asking for an “update” on long-term operating margins. Again—Hastings:
“By update that implies that we've said something about that in the past, which I don't believe we have. In general, we would hold the domestic business, we would want that to steadily improve, probably at a fairly modest rate, because the top line is expanding so dramatically. The global operating margin would depend upon international, and at what rate it was prudent to invest.”
The change: Instead of talking about international and domestic, Hastings mentioned uncertainty about competition. And the competition is real.
My take: Over the years Netflix has found a way to make fools out of anybody who questioned its powerful model or excellent execution. Nuanced changes meant nothing as the model powered on. But the future of the streaming space is anybody’s guess. Netflix will likely be a winner, but with likely price wars—at what cost?
Questions? Comments? Write to HerbOnTheStreet@cnbc.com