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NETFLIX Free Resources
Which one? Wi...
Which one? With estimated revenue this year of up to $255 million, Netflix is far smaller than Amazon was. Yet in many ways, the Los Gatos (Calif.) company is sturdier. Netflix is free of debt, holds a $104 million reserve of cash and short-term bonds, and operations are creating cash. In 2002, Netflix saw $40 million in cash flow and nearly $16 million in free cash flow, after deducting capital spending on such items as additions to its DVD library. This year, free cash flow may top $25 million.
So why not buy in? I would be tempted, even though the stock trades at five times the value of its net assets and 18 times my estimate of this year's free cash flow. Neither multiple leaves much room for error. Yet even more sobering is what Blockbuster plans. It now runs a pilot program, called Freedom Pass, in about 500 stores, that permits subscribers, who pay $19.99 to $29.99 monthly, to rent two or three movies at a time, on DVD or VHS tape. As with Netflix, they can rent as many as they like each month and keep them as long as they like without late fees.
Blockbuster CEO John Antioco told me that by this time next year, the chain will roll out Freedom Pass to its 5,500 U.S. stores, adding the option of ordering DVDs online and exchanging them by mail, just like Netflix. "We've scoped it, we understand it, and we think it's right," Antioco said. From findings in such test markets as New York and Phoenix, he expects 10% to 15% of Blockbuster's (BBI ) 20 million active U.S. accounts to sign up. At 10%, that's 2 million accounts -- a serious dent in the 5 million subscribers Netflix aims to grab. Nor is Blockbuster the only rival. Wal-Mart.com now rents DVDs by mail -- at a cut-rate $18.86 a month, naturally.
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