From: Nicole Urken
Sent: Monday, September 19, 2011 7:55 AM
To: James Cramer
Email from NFLX CEO apologizing to all subscribers link is below—Talk about groveling! Changing DVD-by-mail to “Qwickster” could be risky move—more diluting brand name.
From: James Cramer
Sent: Monday, September 19, 2011 7:56 AM
To: Nicole Urken
Subject: RE: NFLX
Pathetic. NFLX is the company breakup that doesn’t add value.
In the tech-consumer space, the analysis of Netflix’s recent doom has been overshadowed by the war of Amazon vs Apple , or the “war of the As.” Will Amazon’s Fire cause Apple’s iPad, the king of the tablet surge, to go up in smoke?
The cannibalization-of-sales scenarios have been scrutinized by the analyst community, the compare-contrast analyses of features have been laid out by tech blogs, and everyone and his mother (well, technologically-inclined mothers at least) seem to have an opinion about the potential of the products. But the missing piece of the debate? That this is nothing new!
In fact, the tech sector has been increasingly populated with companies that are in "coopetition"—cooperating and competing simultaneously. Look no further than Nvidia and Intel or Microsoft and Google . As it turns out, frenemies aren't limited to Lindsay Lohan's and Rachel McAdams' "Mean Girls" flick or middle schools throughout the country ... They also populate the tech sector.
And while it's true that competition can be bad for business, particularly when it comes to head-to-head products, that doesn't mean there always has to be just one winner.
Let’s look at the previous consumer tech ‘hot topic’ as a lesson: Netflix . The reason for its 60 percent drop in the last two months did, ultimately, come down to competition. Its stark pricing increases in order to encourage subscribers to switch to streaming were an utter failure because they were executed when NFLX hadn’t yet built up enough of a streaming library to maintain loyalty.
That said, while the bears ran a victory lap after the NFLX debacle, those same bears missed the upside of one of the top performers since the market bottom. For example, research house Wedbush and UBS both had “Underperforms” on NFLX since early 2010, missing out on what was a triple. And while Whitney Tilson’s ill-timed short correctly pointed to competitive concerns, he certainly didn’t profit from this foresight.
On Mad Money, we recommended NFLX at $54 in October 2009, catching a huge run, and as Jim recently said, while we always encouraged taking profits along the way, we should have pounded the table harder after the announced pricing changes. After all, as we’ve said, timing is everything.
Lesson? While competition could be an issue down the road for the likes of Amazon or Apple, that doesn’t mean you can’t ride the upside in the meantime. Just make sure to lock in some gains along the way and keep evaluating.
Plus, these are unlikely surge-then-burn stories. As we’ve said on Mad Money, Apple’s ecosystem based around products and software and Amazon’s rich e-commerce market place and web infrastructure make both of these names strong long-term investments. And while Amazon is trading at a loftier multiple, Apple is trading at just 10x forward P/E, ex-cash!
Conclusion? Apple and Amazon are both buys—despite new competition—on any pullback. These are both names that are levered to the right growth areas here.