Reed Hastings Letter to Whitney Tilson: Don’t Go Long Our Stock

Oct 25, 2011
J. Webster
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Honestly, Whitney, you’re my friend, right? I know, I know, I know I was wrong to tell you NOT to short our stock a few months ago, but now I want to come clean and not let you lose money going long our stock this time. Yeah, it’s getting a bit confusing isn’t it. But Whitney, you are a wonderful human being and I want to save you from more pain with our stock.

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It’s just that, we are freaking out over here at Netflix. Sure, the Qwikster fiasco and raising prices have put us in a bind, but things weren’t looking good before then. We’re losing subscribers by the bucket load and it doesn’t look like it’s going to end anytime soon. These damn RedBox DVD outlets are becoming more popular and the Hulu’s, YouTube’s and Apple’s of the world are also cutting in on our business even more. Oh yeah, and Amazon just out right scares me. That company could destroy us. And an actual Apple TV would by the final knife in my heart.

All in all, I just don’t think it’s wise to get long our stock, yet. Don’t get me wrong, I believe in the company, but you’re going to end up getting in too early. I’d say shoot for a $20 price target is where you want to get long. You were right when you were shorting our stock, we face multiple challenges: from adding quality content to facing high bandwidth fees to increased competition, as I mentioned above.

We have made tons of mistakes in the past, one big one being buying shares of Netflix ourselves when it was in near $200 a share when we could have used that money to expand overseas. Now that expansion is being put on hold. Moreover, we are going to have to pay a higher price for new movies if we want them. And mostly likely we won’t be able to even afford exclusive deals. Not now. And since companies know we are hurting, they’ll probably swoop in and get movies and deals we just can’t afford. Yes, HBO is happy to see his die.

And if the stock price keeps dropping we might resurrect Qwikster or open some stores. Yeah, that’s right. You heard me. We might open some old school DVD stores. Heck, why don’t we build our own little red Netflix boxes and put those in front of groceries stores. Now there’s an idea.

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