Distribution : NetFlix loses $50B in Market Value Over night! by Shadow Dragu-Mihai, Esq., Ipg

Do you like the content...

To compete with the major studios and networks was always going to be an uphill battle. If they can hold onto some those blockbuster titles, they might have a chance. Maybe... *I've seen that they're already dipping their toes into online video games. They might be able to pivot and re-brand but (I think) it IS a matter of time before they follow Erol's Video and Blockbuster into pop culture history. I appreciate their willingness to make original content and pick up indie films but I think the big players are "hip" to that play as well. Nothing lasts forever...

Landis Stokes Good points. Netflix was admitted into the MPA in 2019, in anticipation of which they cut off North American independent film aggregators entirely (leading to the bankruptcy of TAG, Distribber, et al) as part of an understanding with the 5 senior MPA members (actually 4 - since Fox is owned by Disney). Now it doesn't take a Ph.D. in economics to work out that subscription based services are unsustainable. So Netflix has to either (a) switch it's business model at some point, or (b) go the way of the dodo. I think that major investor in Netflix AT&T is hopeful that it will control Netflix's library should it go down, but that's just speculation. I couldn't understand otherwise why they put $2B+ into Netflix just before covid hit and just after they had posted record losses.

Oh how the media loves to throw an attention-grabbing headline out there. Looks like a good time to buy Netflix shares, as the article points out, the biggest drop in a decade. If you follow the typical market response to Netflix quarterly reporting, there's always a bit of a sell-off, though not like this. What I notice is market analysts and industry commentators take a quarter by quarter short-term view of the company's performance, constantly expecting the meteoric rise to continue and wishing it to crash.

Here's a few interesting performance metrics of a stock some are selling:

- Full-year revenue of $30 billion grew 19% YoY while operating income of $6.2 billion rose 35% YoY.

- Revenue in Q4’21 grew 16% year over year with a 9% increase in average paid memberships.

- Earnings per share (EPS) crushed consensus estimates, rising 11.8% compared to Q4 2020, while analysts were expecting a decline of 32.2%

- They added 8.9 million subs so global paid streaming memberships rose 8.9% YoY - that's 8.9% of their 200 hundred million subscribers...

- While 90% of new subs came from outside the UCAN region, Netflix added 1.2m paid memberships from the mature UCAN market

- They had the biggest TV show of the year with Squid Game, a global phenomenon

- Netflix was the most Emmy-winning and most-nominated TV network and the most Oscar-winning and nominated movie studio of 2021. Clearly they're doing something right content-wise.

- I haven't looked it up but the asset value of Netflix original content will be huge and growing. Netflix has total control of the content they create and screen exclusively, and can at any time choose to license their content to others.

I've been in financial markets for a very long time, and usually if a company gives this type of quarterly reporting, they're considered to be a strong business. But don't let sensationalism get in the way of a true story...

The analysts are Omni-focused on Netflix marching to the beat of the same drum that other streamers do ie take the advertising route. At this point, that's certainly not necessary.

Netflix plays the long game and marches to the beat of their own drum. One of their greatest assets is their subscriber's appreciation of their no-ads viewing experience, so to compromise that would have quite a significant impact, regardless of how much they could potentially sell the ads for (a LOT comparatively speaking).

Don't cry for Netflix with over $7 billion per quarter coming in from a global business from subscription revenue alone, and $15 billion at the bank last time I looked, I'm sure management sleep fairly comfortably at night.

For those who know enough about gaming and how that whole stratasphere works, you'll understand the bigger picture Netflix is working toward.

I wrote about Netflix at length in a blog post here exploring the bigger picture that most analysts and industry observers choose to overlook in favour grand stand headlines: https://www.wanted.com.au/netflix-plays-the-long-game-while-analysts-eva...

Wow - yeah this would be a good time for Netflix stock buying, right, Kate Neale?

Kate Neale True, but still at the end of 2021, Netflix had $17.6B in debt, of which $17.1B is long term debt, and their net profits for the year were just over $2B, and as Bob Ciura points out, "...Netflix has failed to generate positive free cash flow growth," and has yet to pay its first stock dividend (https://www.suredividend.com/netflix-dividend/). I am long ago over the fantasy that the numbers of zeros in revenues are positive, when the ability to retire actual debt is little or nonexistent. I frankly don't see the long term viability of its business model and still say that it will eventually be forced to change its business model or go the way of the dodo.

Re: Shadow's comment: There are many new streaming competitors coming up. The pie isn't endless. More pieces of the pie means fewer larger pieces until it shakes out.

Eventually a business needs to make a profit. In the end of a bull market (remember the dotcom shakeout?) hopium becomes "where are the dividends/positive cash flow?"

The debt on their balance sheet doesn't concern me, they can retire their debt any time they want to currently. They could elect to divert quarterly revenue for two months to retire the debt and it's done. It's actually good practice to borrow money to fund growth while it's cheap instead of using your own.

The money they're spending is largely being invested in growth and content assets. Growth of the international subscribers and content produced from international regions, growth in expanding the business into gaming which has multiple advantages long term, and growth in the international footprint and market share. Remember as long as the number of people gaining access to reliable internet access increases, Netflix, and others, have market growth opportunities. The global population is currently around eight billion, as at 2021 around 4.6 billion have internet access and this is expected to grow to six billion by end of 2022. Those statistics alone provide market growth opportunity for a market leader like Netflix to continue to consistently grow subscribers each quarter.

Netflix has historically grown strategically and by stealth. I'd be more concerned at the departure of the two key executives than I am about any financials currently, and paying a dividend for any business is an arbitrary decision. If, as a shareholder, your shares have increased consistently and impressively in value over recent months or years, the dividend is a bonus, not an entitlement. It is prudent of the business to deploy funds where they will deliver the best return to the business, which ultimately delivers best returns to all stakeholders.

I wish I could say I was at the helm of a business that had performed this well, on so many fronts, for so long. It's an impressive commercial enterprise.

Note: this is not financial advice, check with your financial advisor before proceeding with any investment. My observation is I believe their business model is strong, unconventional, they're in a global leadership position, analysts hold a short-term quarterly reporting focus and Netflix is in a strong financial postion. Competitors are on the increase, but much of the existing catalogues owned by the competitors are aging and decreasing in value. For instance, I have been subscribed to Para+ here for 12 months and not logged on. I have received an email each month promoting content I have no interest in. I've had no proactive communication from them to gauge my interest in anything in their catalogue, most of which I would have seen over the years and the new stuff is geared to a different and younger audience. Netflix are half tech and half entertainment company, and 100% audience/market driven. If their share price is off $100 look deeper into why and if that's validated by the performance metrics beyond subscriber numbers. As it turns out, there's always a sell off after each quarterly release, but if you know the entertainment/media/gaming/streaming/VOD market, you'll know Netflix is the CocaCola of VOD.

Kate Neale Now we just fundamentally disagree (with respect, by the way): (1) "they can retire their debt any time they want" - well only if they want to wind up operations and/or take a hiatus from business for a quarter or two. Otherwise, their net profits are just over $2B and that's not going to retire that debt. (2) "their business model is strong, unconventional" - there's nothing unconventional about a subscription based business model which every other streamer on the planet has found unsustainable. It works in short run when you don't care about profits, but is unsustainable as revenues will absolutely stabilize and then recede, but costs must continue to rise. That's why Amazon doesn't do it except for the free content it brings on, which it now only pays a penny a stream for. So Netflix will be forced to change that business model - or go down the tubes. There are ways to deal with it (limiting catalog and rotating out content), but it's not Netflix's model and not going to help them expand - which they must do to sustain their current model. Finally, (3) Netflix share price, after the sell-off is hovering at ~$388/share. Their earning per share last year is just over $6/share (and not paying dividends now or ever in the past). This compares very very poorly to others in the space, and in fact shows that their share price in the market is over-valued by somewhere approaching 1000%. This in turn implies that the market price is fueled by speculators... not by people examining the books - and to me that means that when Netflix starts to falter a bit more, a huge sell-off will occur. It's not time to buy, it's time to hawk the right moment to short-sell.