I am lying on a nice sunny Mallorca beach as I type. So I decided to publish my potential second shared trade to spread the warmth.
(Nah, I wrote this while I was waiting for my Train to Cardiff last week.)
The market was getting volatile while I was writing this, and I have placed a limit order on this well-known company, so if it does reach my price point, it would be executed while I am on my holiday.
I wrote about how I regularly invest in great companies. If the market is nice enough to work together with me, I might be able to add to my existing position at an entry price that I deemed acceptable.
My Second Shared Trade
Here you will find why I am buying, the risk and when I would consider selling.
[sociallocker id=”414″] Netflix (NFLX: NSQ) 11 September 2015
I am sure you know what is Netflix. I wrote about Netflix in my post about regularly investing in great companies where the share price dropped from $40 to $10 (post share split) in 2011, and it has reached a high of approx $130 in August 2015. That’s a 13 bagger in 4 years. That’s almost like a 90% increase per year.
Since then due to various concern about another strategy change and increased competition from other providers like Amazon, Apple etc, the share price is in the $95-$105 recently. So it is not without risk.
I am buying at below $90. (Trading at $98 as I wrote this post on 11 Sept)
Why am I buying:
Although with the recent strategy change which I would highlight in the risk section, I still think Netflix is a great company. It proves that it is willing to change its strategy (whether it is for better or worse, it is too early to tell), and that is really important in this information age. If you are slow in innovating, you would be disrupted by your competitors.
With increasing amount of people choose to save cost on Cable or Satelite TV, shifting to online streaming, the big pie of people who uses online streaming (whether it is Netflix, Amazon Prime, Youtube etc) is growing. Therefore the competition in this sector is getting fierce.
It is also rapidly expanding in other international countries. Once the international subscriber revenues start gushing in, there could be a nice pop to the share price if the growth continues.
I think we would still be watching online content in the next 5 to 10 years. Unless one day, a different sort of entertainment could keep us occupied. Virtual Reality (VR) Gaming perhaps??
Therefore I think Netflix would still be a good company as long as there is enough margin of safety.
Risk and when I might sell:
Netflix US announced it would drop the rights to EPIX, which means some popular films would be taken off Netflix over time, such as Hunger Games, Transformer etc.
Personally I subscribed to Netflix because I like it to be a one-stop shop for movies and TV series. Although I agree that those popular movies could be watched elsewhere.
Because of this change, I would personally discount Netflix premium, as this change would shift Netflix from being a one-stop shop to just another premium channel like HBO.
If Netflix subscribers start to slow down or worse, leave, I would be concerned about the high price premium that is built in Netflix due to the massive success in the past. So do not over-allocate, as this is a high risk, high return investment. [/sociallocker]