mercredi 17 février 2021

Netflix (NFLX)

I just took a look at what superinvestors bought during last quarter. And I've seen that Sequoia Fund bought Netflix. Actually, that's a big buy for them because it's a new position representing 4% of the fund...

So, I've taken a look at Netflix... to see that it was indeed a great company.

We may think that Netflix has some serious competition with all the other streamers that are coming in the market. I have to admit that I don't know that much the streaming market, but I've tried a bit of Amazon Prime Video and I wasn't that seduced by it. 

I haven't tried Apple +, but I've heard that the offer wasn't that wide. Anybody could do a little critic of what they've experienced on various platforms?

Anyway, anybody who has bought Netflix 5 years ago has made more than 5 times his money. And anybody who has bought Netflix last year has made about 50% his money. 

Here's a few observations:

The growth rate is still very high. 

They make profit;

The ROE is very good (30);

Forward PE is OK (42);

The debt level is high, however, it's mostly long term debt.

The cash flows are negative, year after year (probably because they reinvest a lot of their CF), it's strange, but probably logic; 

The brand is HUGE. It should be even bigger in the future. Because everybody has nothing else to do than watching stuff on their computers. The habit will stay, after the pandemic. Netflix is like Apple: for a lot of people, it's a no brainer. And I think that it's the main advantage of Netflix. It's already in the head of hundred of millions of people, all around the world as an easy and cheap entertainment. And I'd bet that it's gonna be there for many years. 

So, i'm positive about that stock. 

4 commentaires:

  1. I prefer the predictability and low PE of some high quality insurances companies and financials services for now. They have done quite good since the elections and they have room to catch up the tech frenzy.

  2. Major disconnect between earnings and free cash flow is driven by accounting rules which allow NFLX to amortize content creation costs over several periods; however, these are real, recurring cash expenses (hence the consistently negative FCF). This disconnect is likely to widen overtime as NFLX delves deeper into content creation versus being a distributor of licensed content. This reality overstates earnings and, when coupled with significant debt in the capital structure, makes ROE metrics questionable at best.

    Certainly there are things to like with NFLX's business model as it is a global subscription service that benefits from significant scale based advantages over much of the competition. That being said, I am not sure how durable its brand actually is. I have my doubts about how much incremental pricing power NFLX actually has left, particularly as studios take back their top franchise content (e.g. Grey's Anatomy, Friends, The Office, etc.) and formidable competition comes online at lower price points. I'd also argue, as is the case with a lot of businesses, the pandemic has pulled forward demand from subsequent periods which will likely result in difficult comps and lower subscriber growth over the next 12-24 months. Just my opinion, will be interesting to see how it plays out.

  3. Netflix or Disney?
    That is the question, considering that Disney have a lot of subscribers to their streaming services. Less than Netflix, but not that far ( I don't recalled the numbers, hence that is why I am vague on this)