• The Seville Reporters

In Focus: Sears and Netflix

You Want to See a Dead Company?

Sears filed for bankruptcy protection this week, which came as a surprise to many people I spoke to. Only because they had assumed Sears filed for bankruptcy a long time ago. Sears has been a dead man walking or a dead company standing for some time. Sears, like Google Plus from a week ago is a victim of not having a distinct thing or in the case of Sears not adjusting their thing to the market.

If you're starting a business or just into business history look into Sears, Roebuck, and Company; and how they used the growing railroad industry along with a catalogue to dominate retail, it is fascinating if you're into that kind of stuff.

But let us fast forward a hundred years plus. That vision that made Sears a titan of retail has been gone for a while now. Some will say Amazon took it, but that's an easy cop out. Sears just lost their thing and never seemed interested in discovering a new thing.

Sears Revenue and Net Income Fiscal Year 2014-2018

Protect Your Mother F%#@g Corner

An example of losing your thing. Recently my grandmother needed a few new appliances. I ordered her washing machine from Best Buy, my uncle ordered her fridge from Home Depot. Both purchases were made online from different states, delivered to her home in South Florida and installed. Not once did Sears come to either of us as an option. What does someone in 2018 go to Sears for?

Retailer Revenue Growth 2013 - 2017

Everything that the family would go to Sears for when I was a kid, people now go to Target, Walmart, and Amazon for. In the late 80's early 90's Amazon didn't exist, and in that same time span Target nor Walmart were in St. Petersburg, Florida or South Ozone Park, New York. To compete and lose is one thing, to let the competition just take your corner is an embarrassment onto itself. You've got to protect your corner.

Lessons from Failure

The life lesson that the decline of Sears has taught us is, always be changing and updating your thing, because your thing doesn't stay your thing forever. This should be an obvious no brainer but Sear's is an AVOID. If you don't own it, don't touch it, there are a lot better places to put your hard earned investment money. Sear's will be closing stores and liquidating assets in the coming months, so if you are a big time shopper be sure to get to those liquidation sales.

Buy Netflix and Chill

I would love to tell you this story of how I was so forward thinking and smart and bought Netflix 10 years ago at $20 per share and still own a bunch of shares and I'm just sitting on piles of money, Neflixing and chilling, but that isn't the case.

As noted last week I only review or consider companies with profits, and like most start-ups profits aren't always the main focus. BUT, it wasn't the lack of profit's that made me avoid buying Netflix years ago, it was the competition, or what I thought would be competition.

King of Streaming

I - stupidly - thought that the cable companies would copy the Netflix business model. I expected the Time Warners and Comcasts of the world to say, if all you want is movies, give us $10, $15, $20 a month, and just watch movies. It just made sense to me because they were already in so many homes and the cord-cutting trend was on the rise, and from their on-demand services they had access to the movie properties. I thought that would have been the cable companies play to keep a cable box in the home and appeal to the cord cutters, but it never came, and Netflix's stock continued to rise.

Even after Netflix split two years ago and sputtered under $100 per share, I stayed away because I swore the competition was coming, and it never came. Now Disney is gearing up for their streaming service and just based off of my expectations of their business model I don't see it really challenging Netflix. Netflix has become the 5th network with the likes of ABC, CBS, NBC, and FOX.

In their recent quarterly earnings Netflix reported over 1 million domestic streaming additions and 5.8 million international streaming additions. The company does make a profit, but still has negative free cash flow, $8.3 billion in debt in a time of rising interest rates, and only $3 billion in cash and cash equivalent.

Netflix Subscriber Growth

Source: Netflix

Netflix is another investment I look at with more of a technical eye than a fundamental eye. With the pull back that the markets have experienced the past few weeks, Netflix has dropped down to it's 200-day moving average. This is a nice place to pick up some Netflix shares. It appears that cable companies and others are content to let Netflix dominate this space. Netflix is a Buy, with the 200-day moving average (the blue line on the chart) as our guide.

Source: Yahoo Finance

The Summary

Sears, our dead company standing is an absolute AVOID. There are investment strategies that look at bankrupt companies, but we would highly suggest investors leave Sears alone at this time. Netflix is a nice BUY from a technical standpoint off of its 200-day moving average. The company has demonstrated it can still attract subscribers and the recent market sell off has put it in a safe position to purchase shares with a limited downside. Happy hunting, may your next investment be your best investment.