Blain’s Morning Porridge, Filed by Bill Blain of Shard Capital
“You’re an exceptional judge of Trooper Tyree. You proved that if you stole my horse.”
That was an interesting week… What did we learn?
No surprise in the deepening crisis in Argentina or a comedian president in Ukraine. Headlines this morning are about the absence of vol in currency markets, worries about Italian debt, and what did Putin promise Kim. Stock markets hit new highs as they continue to lap up any good news and discount negativity… How many column inches did Boeing get after withholding guidance because of the deepening uncertainty about the fix on the B-737 Max or the fact its received zero orders since the second crash? Almost none. Facebook’s privacy breach fine got swept under by the powerful results, and the stock rocketed hellip & higher;.
Traditionally Friday is hellip & my rant day;.
Nothing strikes me that Facebook stock jumped on the back of its results. But it should? For months analysts, politicians and media have been fulminating about how the “Surveillance Capitalism” Stocks have pillaged our private information, changed the world and our behaviors through their algorithms, and how social media is damaging us in ways we barely understand. But when the test comes? A call between a poor behaviour fine, or increased earnings? Of course because its advertising revenue is better than expected, we lap up the stock, discount the threats, and forget what we complained about last week.
Is it complacency, greed or just plain stupidity that makes market behave this way? What’s not to like about stock prices that are increasing?
I worry. The world is indeed fundamentally changed from whatever Ben Graham wrote in “The Intelligent Investor”. The Disruptive Tech companies that have dominated these last 10 years are now maturing. Some are proven. Thrive and Other people continue to overturn conventional investment wisdom.
Which of those stocks will trigger the Jenga moment?
Let’s start with some analyst buy/sell recommendation ratios:
Tesla — 66% Sell Rec
Facebook — 80% Buy Rec
Netflix — 66% Buy Rec
Lyft — 60% Buy Rec (Uber is coming…-RRB-
Facebook is what Facebook is… Forget everything and buy it for its ad revenue… until the next thing comes along or folk just stop using it…
The obviously vulnerable one is Tesla: $700 millimeter Q1 loss, likely to face a massive cash call because it burns through cash faster than expected, run by man who seems to think the market will thank him for asking for yet another $2 bln. Did you know Tesla is being outsold by Audi and Jag models in Europe by a factor of about 5 to 1? I’ve driven the Jag and was unimpressed. But, ranting about Tesla would be seal clubbing…
We’ve got the Uber float coming on the back of Lyft. They are taxi companies — just like We Work is a property play. Do they justify their valuations?
Lets pick on Netflix. .
Fresh from a 2 bln raid on the Junk bond market this week, Netflix remains a stock market darling.
But , those people of a certain age will remember Betamax vs VHS, and the video store. Did you know there is a Blockbuster video store open? Its in Oregon and survives on tourists. Back in 1989 Blockbuster was opening a movie store somewhere every 17 hours.
Netflix certainly does not want to be Blockbuster. It’s over two decades since I first wrote about the non-sustainability of Netflix’s subscriber acquisition cost spend to attract subscribers. I questioned whether it could survive long enough to keep paying $12 bln annually for articles to attract 35 mm new subscribers per annum, while its also raised $12 bln in debt. Generating raising debt aren & rsquo and increasing cashflow that is negative;t investment themes.
But maybe Netflix has turned the corner? With almost 150mm subscribers, it’s now approaching critical mass. Let’s assume every subscriber pays $100 per annum, (they say its higher, but there are 6 month free offers and its cheaper in some countries), then Netflix is moving into positive cash flow (if you discount its debt), and being able-ish to cover $12 bln annual new content spend.
Gosh? Does that mean it will start paying a dividend or even taxes? Of course not. If Netflix was paying taxes, theyrsquo;d be doing it wrong. And I guess its real problem is its reached critical mass just in time for everyone to desire its business market.
Now the talk is about how Netflix is going to stand up to competition in the content streaming world. The analysis and media discuss Disney “posing the most serious threat to Netflix’s dominance”.
They are right. Disney is 95 years old, the entertainment brand, proprietor of theme-parks, film studios, media, rights and lots. It is going to shortly launch a $7 per month streaming service with its content in the Mouse, innumerable Princesses, Star Wars and the Avengers. . Plus lots of articles you didn’t know was Disney. Disney isn’t the company that replaced Blockbuster. It’s a brandnew. It makes Content men and women want to pay for. The three likely biggest movie releases of the year: Frozen II, Star Wars 9 and Avengers are Disney!
Netflix was a tumultuous idea around streaming programmes. Now its. For achievement, its credential is its ability to compensate for hellip & the gift;
Disney is a threat to Netflix. Apparently, surveys show about 14% of Netflix subscribers (mostly families with young children ) are contemplating cancellation and moving to Disney instead — that’s possibly 21 millimeter subscribers. On the other hand, 20% of Netflix subscribers are expected to subscribe to both Disney and Netflix. Room for both? It’s called contest. Netflix is priced like a monopoly.
I was fascinated to see Netflix engineers aim for subscribers to click on a programme within 10 seconds. Must be something wrong with me. I can’t find anything I fancy. I don’t have the time to get sucked I might not enjoy, and they don’t carry classic Kurowasa movies, or John Wayne’s Calvary Trilogy! Instead, I flip to Amazon prime as well as the BBC.
I guess I’m not alone in wondering if I really want Netflix. I recently dumped Spotify, and wasn’t struck by a thunderbolt. I moved to Apple — yet another competitor in Netflix’s space!
I had been reading about who watches what on Netflix. 72% of Netflix’s watched programmes are “rdquo & library programming;: The number 1 and 2 shows on Netflix are US version of The Office and Friends. They are classic TV programming and they draw stable audiences. In fact just two of Netflix’s own shows are in its top 10 (according to the WSJ) by seeing time: Stranger Things and Ozark.
Stranger Things got 27 bln moments of viewings last year. The Office was viewed for 46 bln minutes. Even more intriguing is viewings of Stranger Things spiked to 11bln minutes in the month around the launching of a new series from practically zero, but then fell back dramatically to less than 1bln. Viewings of the Office consistently surpassed 3 bln every. The lesson? Old programming is a better content filler that is more reliable than new stuff, which requires replacement and continuous reinvention.
What would NetFlix do without their library articles? Both NBC and WarnerMedia are setting up their own streaming platforms. More than half of Netflix&rsquolibrary articles could go back to competing streaming solutions. Netflix spins as a positive: the chief content officer saying: & ldquo; more of our money to be able to perform titles that are spectacular. ” That’s nonsense. No one is subscribing to Netflix for its new content! Its Netflix will accept paying licence fees to keep the programmes that are popular that are older. The numbers show it’s the old stuff, not their fancy content that subscribers want!
Netflix is currently paying $60 million to Beyonce for ldquo 3 feature &;specials”. It’s a great deal for her — she launched a new album to coincide with the first programme release. They paid $40mm to Ricky Gervais for a few programmes, and we don’t know what they paid David Attenborough to narrate their character programme. They are currently spending more on hit show manufacturers including the team that made Grey’s Anatomy, Glee, and similar.
If you’re a Netflix subscriber, Enjoy.
Are they making the wrong stuff? Back in the dark mists of long ago, I wandered into Blockbuster that everyone raved about or to rent something just. If I can’t get Game of Thrones on Netflix, I may rent it from somewhere else… and could that be true of just about what Netflix is producing?
I guess it means Netflix has to change. Either it needs to start advertising — and that means a more expensive non-advertising provider, or it begins monetising its & ldquo; rdquo big data & ; collected from its clients — which will no doubt attract much noise. (See Facebook comments above.)
I’ve got a much better idea…
We accept habits have changed. I want to watch what I want to watch when I want to watch. I need the right to binge watch. So, I want to go somewhere I can download anything. If I want to pay $40 to get Game of Thrones or $1 for the entire series of Citizen Smith. . I’m inventing a Trivago, an Ebay, of Content. . a content shop. . (I won’t call it Blockbuster… but that’s precisely what it’ll be. .) Prices can be set according to need and time, or what providers will provide at… Disney ain’t dumb — There’s a price (a premium cost) they’ll sell the Lion King, or any of the content, with no subscription… In such a world, Netflix simply becomes another content provider…
My competition in this space will be Prime. I’m off to discuss it will some chaps later…
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