How to trade Netflix, Inc. (NFLX)

Netflix, Inc. (NASDAQ:NFLX) has posted impressive second-quarter results with earnings coming in at $1.15 a share at the back about $1.34 billion in revenues that beat estimates of $1.33 billion. Despite posting impressive second-quarter results, AdvisorShares portfolio manager, Brad Lamensdorf, in an interview on CNBC reiterated a short position in the company’s stock, citing the company’s outdated business model.

Netflix, Inc. (NASDAQ:NFLX)

Brad Lamensdorf has a lot of concerns on the company’s model that is 50% reliant on the DVD model which according to him is a ‘dying business’. Lamensdorf also raised concerns about the company’s use of most of its revenue to pursue international growth without converting some of it into free cash flow.

“When you look at their business model, when you really look at what they have, 50% of their business is in the DVD business which is a dying business. It is going away,” said Mr. Lamensdorf. It is not the first time that the analyst had maintained a short position on the company reiterating they did the same before Carl Icahn, got involved with the company.

Mike Olson of Piper Jaffray on the other hand, reiterated a ‘Neutral’ rating on the company’s stock echoing Lamensdorf concerns that most of the investors are mostly focused on free cash flow. Investors have also been watching how Netflix, Inc. (NASDAQ:NFLX) is driving its sub growth especially with the ongoing focus on suburbs, which are expected to drive the stock in the coming months.

“In general, right now investors are just focused on specifically sub growth and so if they continue to drive the subads that are going to be what is driving the stock. I think long term this is going to turn into a story that is more about cash flow and valuation,” said Mike Olson.

Netflix, Inc. (NASDAQ:NFLX) is currently performing extremely well in the domestic market with the ongoing expansion in the international market also looking good. As the company rolls out into more countries according to Olson, profitability levels could slightly be affected but as long as subs growth are there the stock is destined to continue growing.

Disclosure: none

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