Improving the Competition’s Performance


Steven Spencer Image Steven Spencer Partner, SMB Capital

As Ovid once said "A horse never runs so fast as when he has other horses to catch up and outpace;" an axiom that seems true of stocks, as well, writes Steven Spencer of SMB Capital.

On December 12, Coinstar (CSTR) announced they would be starting a streaming service in competition with Netflix (NFLX). My initial reaction was a smile and a bit of a chuckle. CSTR has been doing very well for the past few years offering $1 DVDs at supermarkets. A simple business model that was leading to good cash flow. Now it was going to enter the much more complicated space of delivering content via broadband technology. A space that NFLX has been game planning for years and completely dominates (just ask AAPL, AMZN, and BBE). A space that many people think will eventually even crush NFLX, because the cost of licensing good content will be to high for NFLX to earn a profit.

The initial reaction to this announcement was some pre-market selling in NFLX. But by the open, it was positive and by the late morning it was driving above the prior week's resistance. In the week prior to the CSTR announcement, NFLX had been strong trading in the mid to high 80s. This strength began on 12/4 with a future distribution deal with Walt Disney (DIS) announced.