Just Like The Housing Boom, Netflix was a Bubble (NASDAQ: NFLX)

NEW YORK - Tulipmania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed. 400 years later, Netflix Mania came saw and went. The stock is down over 27% in after hours trade but should it be down more? The company just announced it won't be profitable starting next year. Netflix may have just reported the worst quarter ever as the company announced Q3 profit which shrunk by $6 million compared to Q2 from $68 million. Worse was subscribers dropped for the first time in a long time and revenue as a whole only grew 4.1% sequentially to $821 million. The company also guided way down for their next quarter as they expect net income only between $19 and $37 million. They expect to lose domestic streaming and dvd subcriptions in Q4.

Worse yet amortization of streaming content will rise by at least $100 million in the next year it grew 30% sequentially, this means profits will drop dramatically going forward since revenue is no longer increasing. If content costs continue their skyrocketing rate then Netflix may report shaply lower profits or a loss in the next year. We calculate content costs could rise to over $200 million a quarter.

Even worse yet the company's financial position is treacherous. Its current ratio which was never that impressive has gone from 6/4 to almost 1/1. Current assets excluding content shows a current ratio of 1/2. Netflix appears to be on the net track towards bankruptcy protection.

Click here to read our Netflix Report