05-02-2012: INDABA's WebTech Research: Netflix & Coinstar report. Upgraded NFLX to Strong Buy from Buy and downgraded CSTR from Buy to Sell. Published when NFLX share price was depressed and investors were unsure of what to do with the stock. Indaba's Webtech Research report covering Online Recruitment space. This report will help you make investment decisions regarding the online recruitment sector. * We are structurally positive on the outlook of social-passive recruitment models. * We expect the businesses to outperform with the elements of a) user engagement; b) client retention; c) focused target market

1. Video Content Distribution Update | May 2, 2012
In this report we review and update the investment recommendations from our January 19th, 2012
research piece, “Video Content Distribution: Investing in Digital Streaming and DVD Distribution.”
Netflix [NFLX] – Executive Summary
• Valuation: We are raising our price target for NFLX to $117.44 (vs. the previous price target of $112.77).
This target price centers on the value of the streaming business, and excludes incremental value from the
DVD business. The rise in valuation stems from better than expected increases in streaming contribution
margin.
• Investment Thesis: We remain confident in our assessment of key valuation drivers: a) continued online
sub growth; and b) rising contribution margin. Our FY ‘12 and FY ‘13 streaming subscriber estimates of
28.8mm and 34.5mm remain unchanged, and below consensus expectations of ~31.6mm and 40.5mm,
respectively. With respect to contribution margin, we assume a FY ‘12 margin of 14.1% (avg. of 13.2% for
Q1 ‘12 and 15.0% for Q2 ’12) and FY ‘13 margin of 15.1%. We continue to believe that the DVD business
will function primarily as a funding mechanism for driving streaming growth, and should not be valued
separately.
• Trading Strategy:
• Long: We have modified our trading strategy based on the new price target and recommend that
investors initiate long positions under $87.78, and buy aggressively under $85.09.
• Short: We recommend that investors await “over-confirmation” of the long-thesis (above
$129.18) before considering short positions. Note that based on our 1/19/12 report, investors
were presented with an opportunity for profitable short positions between 2/3/12-2/8/12.
Coinstar [CSTR] – Executive Summary
• Valuation: We are raising our price target to $74.19 (vs. the previous price target of $59.31). This is based
on a sum-of-the-parts valuation of CSTR’s two distinct businesses: a) DVD rentals and b) coin services.
The rise in valuation stems from Q1 ‘12 and Q4 ‘11 results exceeding our expectations.
• Investment Thesis: We continue to believe that positive same-store-sales (store = kiosk) trends will be
critical for justification of the EBITDA multiples used in our valuation (6x for the DVD business, 3x for the
coin business). CSTR continued to benefit from its recent, well-received price hike.
• Trading Strategy:
• Long: We recommend investors close long positions based on: a) unfavorable risk/reward ratio
(~1x); b) realization of primary catalysts (positive impact of price hike in earnings and
announcement of streaming plans with Verizon); and c) lack of incremental catalysts.
• Short: We recommend investors consider short positions if the long-thesis is “over-confirmed” by
the market (i.e. if shares rise above $81.61).
• The stock has increased by 36.1% (as of 4/27/12) from the initiation date (1/19/12).

2. Netflix [NFLX] Detail
Recent News
• 4/23/12: Q1 ‘12 revenue/EPS exceeded expectations ($870mm/-$0.08 vs. $869mm/-$0.27) and mixed
guidance ($820.5mm/$0.02 vs. $897mm/-$0.17). Shares closed down ~14% as domestic streaming net
adds outlook missed expectations (200-800K in Q2 ‘12 vs. expectation of 1.2mm).
• 1/25/12: Netflix reported Q4 ‘11 results with revenue/EPS exceeding expectations ($876mm/$0.73 vs.
consensus of $857mm/$0.55) and strong guidance for Q1 ‘12 ($842-$877 mm/-$0.49 to -$0.16) vs.
consensus of $847.8/-$0.30).
• 1/25/12: NFLX announced that Amazon [AMZN] is considering breaking out its video streaming operation
as a standalone subscription based model (covered in 2/3/12 weekly report). However, AMZN denied this
assertion as a near-term possibility.
Key Operational Metrics
• Sub growth (Q1 ‘12 vs. Q4 ‘11): Experienced global streaming sub growth of 12.5%, from 23.5mm to
26.5mm. US streaming subs increased by 1.7mm (8% Q/Q) to 23.4mm and international streaming subs
increased by 1.2mm (65.2% Q/Q) to 3.1mm. The DVD business, however, lost 1.1mm subs.
• Sub growth (Q4 ‘11 vs. Q3 ‘11): Experienced global streaming sub growth of 2.6%, from 22.9mm to
23.5mm. US streaming subs increased by 220K (1.0% Q/Q) to 21.7mm and international streaming subs
increased by 380K (25.7% Q/Q) to 1.9mm. The DVD business, however, lost 2.8mm subs (covered in
2/03/12 weekly report).
• Contribution margin (Q1 ‘12 and Q4 ‘11): Q1 ‘12 streaming contribution margin of 13.2% exceeded
guidance of 11% and rose from Q4 ‘11 margin of 10.9% (which exceeded guidance of 8%).
Consensus Concerns
• Increasing content spend (from 1/19/12 report): We continue to share this concern. As of Q4 ‘11, NFLX
had over $3.9B in off-balance sheet agreements to acquire and license streaming content (latest available
figures). With the company losing ~1.1mm DVD subscribers in Q1 ‘12, it faces a difficult task of attracting
enough new customers to offset this pending liability. With content acquisition costs of $1.9B in 2012,
short term liabilities of $325mm, net short-term assets including cash of ~$1.8B, and no further additions
to content library, NFLX will need to raise at least $425mm.
• Continued sub loss (from 1/19/12 report): Q1 ‘12 and Q4 ‘11 results addressed the concern that sub
losses stemming from the increased pricing / Qwikster debacle would continue, as we expected.
• Stagnating sub growth (new): Despite the “consensus concern” above being put to rest, the outlook for
Q2 ‘12 net adds provided by NFLX has further fueled concerns over sub growth. We do not share this
concern and are confident that NFLX remains on track to meet our estimate of exiting 2012 with
~28.8mm subs. Additionally, we believe that investors are currently undervaluing the international
growth opportunity due to focus on the up-front costs associated with subscriber acquisition.

3. Coinstar [CSTR] Detail
Recent News
• 4/27/12: Reported Q1 ‘12 results with revenue/EPS exceeding expectations ($568.2mm/$1.39 vs.
consensus of $498.5mm/$1.34) and mixed guidance for Q1 ‘12 ($525-$550mm/$1.09-$1.24 vs.
consensus of $544.1/$1.05). Shares closed down 5.8%.
• 4/12/12: CSTR preannounced Q1 ‘12 results, raising its revenue outlook (~$567-$569mm vs. $530-
$555mm guidance and consensus of ~$538mm) and its EPS outlook ($1.36-$1.40 vs. $0.76-$0.91
guidance and consensus of $0.89). Shares closed up 7.3%.
• 2/06/12: Reported Q4 ‘11 results with revenue/EPS exceeding expectations ($520.5mm/$1.00 vs.
consensus of $498.5mm/$0.64) and mixed guidance for Q1 ‘12 ($530-$555mm/$0.76-$0.91 vs.
consensus of $518.9/$0.86).
• 2/06/12: CSTR announced: a) acquisition of NCR’s DVD kiosk assets; and b) JV with Verizon for video
streaming platform. CSTR defined its future growth drivers with this announcement: a) extension of the
DVD tail; and b) video streaming (covered in 2/10/12 weekly report).
Key Operational Metrics
• Same Store Sales (SSS): Registered strong growth of 27.1% in Q4 ‘11. This was by far the strongest
growth registered in FY ‘11 from the stable range of 13-15% for the first 3 quarters of FY ‘11. CSTR now
commands ~37% market share, up 10% points Y/Y. It further reported robust growth of 28.1% in Q1 ’12,
showing continued strength in SSS.
Consensus Concerns
• Impact of price hike (from 1/19/12 report): Following CSTR’s Oct 2011 price hike announcement,
investors exhibited concern over: a) customer loss or reduced customer spend; and b) increased credit
card processing fees (related to the Durbin agreement) would remove any potential revenue benefit
from the price hike. As we expected, Q4 ’11 and Q1 ‘12 results have shown customers did not have an
adverse reaction to the $0.20 price increase (from $1.00/night to $1.20/night).
• Lengthening DVD windows (from 1/19/12 report): We continue to share this concern. However, the
work-around process (purchasing DVDs through the retail channel) has yielded satisfactory performance
according to management. CSTR has been able to avoid margin degradation by selectively purchasing
titles through retail channels, based on expected demand for titles. Recent popular titles that have been
purchased through retail include J Edgar and A Very Harold & Kumar Christmas. We continue to monitor
developments in this area.

4. Contact Information
For questions and comments, please contact:
Brian Murphy
President, Indaba Global Research
617-571-1550
brian@indabaglobalresearch.com
www.indabaglobalresearch.com
This presentation is confidential and intended solely for distribution by Indaba Global Research (“Indaba”) on behalf of WebTech Research (“WebTech”). This document may not be
reproduced or redistributed without the express permission of Indaba and WebTech. Recipients of this document agree to treat the document as confidential and agree not to disclose
or permit agents or affiliates to disclose any information contained herein without the express written consent of Indaba and WebTech.
This document has been prepared for discussion purposes only and does not constitute an offer for sale of any security. WebTech is not a legal, tax, or accounting adviser and makes no
representation as to the accuracy or completeness of any data or information gathered or prepared by WebTech hereunder. Your company should therefore consult with its own tax,
accounting, legal, or other advisers and make its own independent analysis and investigation of any proposed transaction, as well as the financial and tax consequences thereof, the
creditworthiness of the parties involved and all other matters relating to any transaction, prior to its own independent decision whether or not to enter into any agreements in
connection with any transaction.
This document is not intended to provide the sole basis for any evaluation by you of the transaction, security, or instrument described herein and you agree that the merits or
suitability of any such transaction, security, or instrument to your particular situation will be independently determined by you including consideration of the legal, tax, accounting,
regulatory, financial, and other related aspects thereof. Opinions and estimates constitute WebTech’s judgment and are subject to change without notice. In particular, WebTech owes
no duty to you (except as required by the rules of the Securities and Exchange Commission, FINRA, Financial Services Authority, and/or any other regulatory body having proper
jurisdiction) to exercise any judgment on your behalf as to the merits or suitability of any transaction, security, or instrument.