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Netflix CEO Reed Hastings has issued a point-by-point rebuttal to fund manager Whitney Tilson’s short position of Netflix.It’s never a good sign when a CEO starts publicly ripping short sellers, but Netflix CEO Reed Hastings is sticking his neck out and telling the world why his company’s lofty stock price won’t come crashing down.
In bold are the critiques of Netflix. Hasting’s response follows:
Netflix has lost its CFO, so it’s in trouble: Hastings says the fact that its longtime CFO Barry McCarthy left is actually a great sign. McCarthy has wanted to leave a number of times in the past, but felt the business needed him too much. Now that it’s in good shape, he felt ready to move on.
Bandwidth costs are going to go up, squeezing margins: Hastings says the price of bandwidth has fallen every year for 30 years.
Netflix’s free cash flow is falling due to more expensive content: Hasting acknowledges this has happened, but says they’ll be working to protect cash flow. He also says, “we have no intention of overspending relative to our margin structure, and there is no specific content that we ‘must have’ at nearly any cost.”
It’s too crowded for Netflix to compete: Netflix subscriptions are growing year over year exponentially. Yes, Hulu Plus could be a threat. As could cable companies adding TV Everywhere options. But, he calls that a long term threat. Not one that will manifest itself in 2011, thus making a short today silly.
The international expansion could be rough: Hastings brings this up on his own. He says the company is expanding internationally, which could cause some problems, but it will keep investors on top of the company’s progress.
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