CNBC Guest alleges: NFLX Cooking the Books

[atticus]

Quote from newguy05:

atticus, what about 150/200/300? you pay $6-7 more but less negative vega (since iv will go up if prediction is a falling underlying) and more downward protection.

also if you dont mind, what rule do you use to determine exit? i am thinking since this is such a wild stock, as soon as the max p&l price is hit i will exit even if it's far from expiration and without much profit.

Or do you usually wait until close to expiration for max profit. I guess exit rule is similar to a short straddle? minus the unbound risk.

Neither are good. Your limited to $150 + debit on yours, while mine earns to $136 on shares. Delta position is the exposure on mine, but a gap under $200 on shares would be a problem. You would still see a nice return at $200 now on a 1000-1500bps jump in vol.

I wouldn't trade either. A bear long calendar is ok, but would invert delta on accounting concerns. So you're left with a long backspread, bear vertical or bear risk-reversal (probably the best-bet here). I have no position in NFLX and don't plan on playing NFLX unless it continues to rally.

 

[rolextrader]

Fraud is a strong word and I doubt it's applicable here; however, the company may be taking aggressive postures that increase reported earnings at the expense of cash flow, all within the GAAP guidelines. I don't know, since I haven't seen the balance sheet and statement of cash flows.

 

[LEAPup]

Quote from BwPirt:

I'm still long for the moment. I'll stay long unless something more concrete comes out about them cooking the books. Otherwise I'll look for another double.

I would re-think that one if I were you.

 

[the1]

At exactly what level do these people work? CFO? Controller? CEO? Senior Internal Accounting Auditer? Please tell me they are executive level because if not they haven't a clue.

NFLX is using the same kind of tricks that AOL used in the dot-com bubble. In a couple years this stock will be doing reverse splits to save its name. If only Blockbuster can hang on that long....

Quote from jedwards:

I personally know some people associated with accounting at Netflix. I highly doubt they would sit by idly and let shenanigans go on, especially if it would damage their reputations. They would either whistleblow or quit outright.

 

[the1]

Enron's financial statements looked fairly good too. If you ever get the chance, watch the documentary on CNBC the next time it air. It's very interesting. There was on very bright analyst who asked Shilling a question about some number on the financial statements that just didn't seem right (can't recall what it was) and Shilling's response was to call him an "asshole." LOL

Quote from Dacamic:

Yes, fraud can happen in any company. I don't find anything particularly suspicious, though, about Netflix's content expenses or accounts payable. Content amortization seems to unchanged as a percentage of revenues in 2010 compared to 2009. In regard to cashflows from operations, an increase in accounts payable would also result in at least partially offsetting increases in current assets or expenses.

 

[Dacamic]

Quote from the1:

Enron's financial statements looked fairly good too. If you ever get the chance, watch the documentary on CNBC the next time it air. It's very interesting. There was on very bright analyst who asked Shilling a question about some number on the financial statements that just didn't seem right (can't recall what it was) and Shilling's response was to call him an "asshole." LOL

I inherited Enron stock in the late 1990's, and thus regularly received their financial statements. The "red flags" in those statements were not in the financial statements themselves, rather it was in the related Notes to Financials Statements. It was obvious they had made a simple business very complicated through derivatives and unconsolidated equity affiliates. Also, as a long-time employee in power-related industries, I knew their energy trading model was unsustainable because the margins were very thin and the underlying risk very high. Based on those fundamental concerns, I sold the stock at $40 (on it's way up to $80 before it dropped into oblivion).

I'm not sufficiently familiar with Netflix to comment on the soundness of their business model. Nonetheless, their business and financial statements are relatively straightforward. In a company of this nature, the most likely accounts to be significantly affected by shenanigans would be revenue-related (mostly simply by adjusting Deferred Revenue). This is the sorta smoke that would make me start thinking about a fire.

 

[atticus]

Quote from the1:

Enron's financial statements looked fairly good too. If you ever get the chance, watch the documentary on CNBC the next time it air. It's very interesting. There was on very bright analyst who asked Shilling a question about some number on the financial statements that just didn't seem right (can't recall what it was) and Shilling's response was to call him an "asshole." LOL

No, Shilling was asked why they couldn't publish their balance sheet in their quarterlies... that was the question that prompted the "asshole" comment.

 

[newguy05]

Quote from atticus:

Neither are good. Your limited to $150 + debit on yours, while mine earns to $136 on shares. Delta position is the exposure on mine, but a gap under $200 on shares would be a problem. You would still see a nice return at $200 now on a 1000-1500bps jump in vol.

I wouldn't trade either. A bear long calendar is ok, but would invert delta on accounting concerns. So you're left with a long backspread, bear vertical or bear risk-reversal (probably the best-bet here). I have no position in NFLX and don't plan on playing NFLX unless it continues to rally.

yeah i plugged all of them into the graph, cant find the right combo to play with. maybe after pe goes to 100.

 

[kayakfly]

Classic talking of the book. netflix is fine, don't buy the hype.

 

[Rickshaw Man]

Quote from Rearden Metal:

My gut feel is that this guy is going to be proven correct before the year is up:
_____________________
NFLX Netflix sinking on volume as CNBC guest discusses short idea on NFLX; says co is overstating cash flow and income (225.57 +2.48) -Update-

Brecken Capital founder, on CNBC, discusses why he is short shares of NFLX. Says accounting issues from Q2 to Q3 to Q4 have gotten worse. Co is overstating cash flow net income, according to him. Accounts payable rose well over 100% to completely wipe out cash flow. Co isn't generating any cash flow from their business if you adjust the accounts payable change and adjust to the fact that they are under amortizing on the net income side their content costs. Believes they are playing accounting games, it will catch up with them, and stock will move to well under $70.

If the banks can report Enron style accounting why not everyone, lets just make something up.

Yes we have been down this road many times in the past decade, yet few if any are punished.