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Market Update

Netflix Quick to Dump Qwikster

Short-term headline-grabbing issues are taking the spotlight away from the fact that Netflix lacks an economic moat and faces several long-term challenges.

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 Netflix (NFLX) announced Monday that it had changed its mind about formally splitting the company into separate businesses for DVDs (Qwikster) and streaming (Netflix) with distinct websites and billing systems. We labeled this as a panic move at the time, and that description appears to have been accurate. Our $150 per share fair value remains the same. We think the shares are slightly undervalued after the recent huge price decline, but we'd require a large margin of safety before recommending the stock. We think some of these short-term headline-grabbing issues take the spotlight away from the fact that Netflix lacks an economic moat and faces several long-term challenges.

John Wooden, the legendary basketball coach at UCLA, had a famous saying, "Be quick, but don't hurry." In a brief press release, CEO Reed Hastings touched on the same theme, saying, "There is a difference between moving quickly, which Netflix has done well for years, and moving too fast, which is what we did in this case."

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Michael Corty does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.