NFLX - Netflix

[UK]

So content prices/bloodbath as Malone says, etc, but one more risk for NFLX, as a stand alone player:

 

"At its event Tuesday used mainly to showcase this year’s new devices, Apple also announced pricing and launch details for its TV+ offering. The service will launch on Nov. 1 for $4.99 a month, though a year of it will be included free for anyone buying a new iPhone, iPad, Apple TV, Mac or iPod Touch."

 

"Comcast Corp. is making its streaming device available free of charge to its internet-only customers, in an effort to capitalize on its expanding broadband customer base as the battle for streaming customers ramps up."

 

AMZN video for prime members etc.

 

So what implications for NFLX (or any other old media company) will be if more and more of video content will become a free product in order to subsidize other things for AMZN/AAPL/GOOG/ATT/etc?

 

 

[cameronfen]

So content prices/bloodbath as Malone says, etc, but one more risk for NFLX, as a stand alone player:

 

"At its event Tuesday used mainly to showcase this year’s new devices, Apple also announced pricing and launch details for its TV+ offering. The service will launch on Nov. 1 for $4.99 a month, though a year of it will be included free for anyone buying a new iPhone, iPad, Apple TV, Mac or iPod Touch."

 

"Comcast Corp. is making its streaming device available free of charge to its internet-only customers, in an effort to capitalize on its expanding broadband customer base as the battle for streaming customers ramps up."

 

AMZN video for prime members etc.

 

So what implications for NFLX (or any other old media company) will be if more and more of video content will become a free product in order to subsidize other things for AMZN/AAPL/GOOG/ATT/etc?

 

So I think about this often especially in the context of Amazon as they enter more verticals Prime becomes a more potent bundle.  But I think the origional free streaming service package was Tmobile offering Netflix for eligible customers.  Obviously Tmobile doesn't own Netflix, but a lot of these deals are a response to Tmobiles marketing innovation as soon afterword Att offered like hulu, spotify offered hulu etc.  I think this deal capitalizes on the fact that a lot of streamers get more than 10-15 dollars a month of value from Netflix and would pay more which makes this partnership attractive.  I do not know whether the new competitive landscape will change things at least from a supply perspective. 

[Foreign Tuffett]

Let's step back from the fray a little bit and look at the big picture: Video content has gotten much less expensive for consumers over time. This trend seems to be accelerating.

 

20 years ago if you wanted to watch video content you could:

1) buy a movie ticket

2) rent a DVD

3) subscribe to a cable or satellite TV service

4) Buy a "bunny ears" antenna to try and pick up a handful of local stations

 

Think about the situation today in 2019. 1 - 4 still exist:

1) De Facto price cut via AMC A-List

2) De Facto price cut via Redbox and the various digital rental services

3) I don't know enough about cable and satellite TV to comment on how pricing has changed over time

4) Video quality and user friendliness has improved over time since (I think) in most places the signals are now digital

 

You also have all this other stuff:

5) YouTube and Twitch are free

6) Apple TV+ will be more-or-less free, given how many people buy 1+ Apple devices per year ("Through Family Sharing, up to six family members can share one Apple TV+ subscription")

7) Amazon Prime Video is more-or-less free, given how many people are going to subscribe to Amazon Prime whether Prime Video exists or not

8 Disney+, Hulu, and ESPN+ bundle will cost only $13 per month

9) Netflix is only $13 per month.

10) I'm not endorsing or recommending this since it's illegal, but millions of people use torrents and streaming sites to obtain content video content for free

 

If you add up #4 - 9 (let's ignore #10), that is a huge amount of content for (in effect) only $26 per month.

 

All this makes me think that I don't want to be involved anywhere in this ecosystem unless I am very confident that I'm betting on a long term winner with pricing power. Hard to be confident of that when things are changing so rapidly.

[Jurgis]

"Comcast Corp. is making its streaming device available free of charge to its internet-only customers, in an effort to capitalize on its expanding broadband customer base as the battle for streaming customers ramps up."

 

They are making device free. Not content.

[UK]

https://www.wsj.com/articles/comcasts-peacock-becomes-latest-entrant-in-streaming-scramble-11568725206

 

In an effort to navigate these choppy waters, Peacock is expected to be available free to Comcast’s more than 21 million cable subscribers in the U.S. In addition, Comcast and NBCUniversal are also looking to strike deals with other American pay-TV providers that would allow them to offer Peacock to their subscribers free as well, a person familiar with the matter said.

[Spekulatius]

https://www.wsj.com/articles/comcasts-peacock-becomes-latest-entrant-in-streaming-scramble-11568725206

 

In an effort to navigate these choppy waters, Peacock is expected to be available free to Comcast’s more than 21 million cable subscribers in the U.S. In addition, Comcast and NBCUniversal are also looking to strike deals with other American pay-TV providers that would allow them to offer Peacock to their subscribers free as well, a person familiar with the matter said.

 

Again, it sounds like it is free to cable TV subscribers (implying that you still pay for the content,  it’s just a different delivery) and not for broadband subscribers. Their video subscribers # from last quarter were 21.6M (and are falling), which about matches the number given above. BB subscribers are higher and about 25M (and moving higher).

 

Linear TV quickly moves to streaming as the default delivery option. This is great for the ca let providers and customers because the hardware for streaming is now cheap (way cheaper than setup boxes) and easier to setup (no tech visit necessary), and set up is mostly self help.

[UK]

Ok, thank you, so maybe with Comcast it is not free and a big threat, but, again:

 

"Apple has tried to counter its shallower offering by undercutting rivals on price. TV+ will cost $4.99 a month, less than the $6.99 that Disney plans to charge for Disney+ and a fraction of the price of Netflix’s fee of $12.99. The iPhone maker can afford to discount the service because of the profits it earns on hardware and its ability to distribute across the more than 1.4 billion active devices it has world-wide."

 

How Netflix or many other old media companies could be impacted by such things?

[DooDiligence]

If Apple & Disney were to combine, I think the rest of them would be in even bigger trouble.

[Gregmal]

https://seekingalpha.com/news/3513163-ad-supported-peacock-streaming-may-come-free-cnbc

 

Yup, no competitions concerns here. Just keep raising prices and signing up international accounts...

[Spekulatius]

https://seekingalpha.com/news/3513163-ad-supported-peacock-streaming-may-come-free-cnbc

 

Yup, no competitions concerns here. Just keep raising prices and signing up international accounts...

 

I don’t own NFLX, but I am customer and think neither Disney + nor Peacock is real competition. The only real competition for NFLX right now is Amazon video. It would consider NFLX as a long of they were FCF positive, but they aren’t - they use $3B in cash annually right now. They do gain a lot of customer and it is sort of understandable , since they need to pay for content upfront, but I would rather stick with business models that generate FCF and can grow at the same time. NFLX right now can’t, but I don’t think it’s a great short either.

[Gregmal]

https://seekingalpha.com/news/3513163-ad-supported-peacock-streaming-may-come-free-cnbc

 

Yup, no competitions concerns here. Just keep raising prices and signing up international accounts...

 

I don’t own NFLX, but I am customer and think neither Disney + nor Peacock is real competition. The only real competition for NFLX right now is Amazon video. It would consider NFLX as a long of they were FCF positive, but they aren’t - they use $3B in cash annually right now. They do gain a lot of customer and it is sort of understandable , since they need to pay for content upfront, but I would rather stick with business models that generate FCF and can grow at the same time. NFLX right now can’t, but I don’t think it’s a great short either.

 

You've mentioned your concerns on MSGN, but for the sake of some Friday night chat, you have any thoughts on SBGI or FOX? Im digging around in those and they look good so far. Recent piece on CNBC(I forget exactly when) basically stated sports and live TV would soon pivot to being a desired asset to streaming co's. Those two kind of own that space.

[Spekulatius]

https://seekingalpha.com/news/3513163-ad-supported-peacock-streaming-may-come-free-cnbc

 

Yup, no competitions concerns here. Just keep raising prices and signing up international accounts...

 

 

I don’t own NFLX, but I am customer and think neither Disney + nor Peacock is real competition. The only real competition for NFLX right now is Amazon video. It would consider NFLX as a long of they were FCF positive, but they aren’t - they use $3B in cash annually right now. They do gain a lot of customer and it is sort of understandable , since they need to pay for content upfront, but I would rather stick with business models that generate FCF and can grow at the same time. NFLX right now can’t, but I don’t think it’s a great short either.

 

You've mentioned your concerns on MSGN, but for the sake of some Friday night chat, you have any thoughts on SBGI or FOX? Im digging around in those and they look good so far. Recent piece on CNBC(I forget exactly when) basically stated sports and live TV would soon pivot to being a desired asset to streaming co's. Those two kind of own that space.

 

I own FOX so I obviously like it. Great balance sheet and franchise and pure live content means that Netflix is not a competitor. And there are no issue with capitalizing content so FCF ~ earnings, unlike CBS for example. Switching the delivery to live streaming may actually be a positive for FOX in the long run. Ai have no opinion on SBGI, just haven’t looked at it closely.

[DTEJD1997]

https://seekingalpha.com/news/3513163-ad-supported-peacock-streaming-may-come-free-cnbc

 

Yup, no competitions concerns here. Just keep raising prices and signing up international accounts...

 

I don’t own NFLX, but I am customer and think neither Disney + nor Peacock is real competition. The only real competition for NFLX right now is Amazon video. It would consider NFLX as a long of they were FCF positive, but they aren’t - they use $3B in cash annually right now. They do gain a lot of customer and it is sort of understandable , since they need to pay for content upfront, but I would rather stick with business models that generate FCF and can grow at the same time. NFLX right now can’t, but I don’t think it’s a great short either.

 

I would argue that HULU is a competitor.  I used to subscribe...cancelled it when I watched most of the shows that I wanted.

 

I currently subscribe to Netflix.  Might cancel that also, as I've seen most of my favorites.  Netflix has a TON of stuff...most of bad or marginal at best.

 

I'm finding that I'm spending more & more of my time watching unique content on the YouTube.

[Spekulatius]

^ Yeah, I would be careful to assign customer lifetime values to something that can be cancelled and restarted at a moments notice. This isn’t some ERP software that running a companies transactional backbone or a LT contractual lock-in.

 

And yes, Hulu and Roku are competitors.

[dwy000]

https://seekingalpha.com/news/3513163-ad-supported-peacock-streaming-may-come-free-cnbc

 

Yup, no competitions concerns here. Just keep raising prices and signing up international accounts...

 

I don’t own NFLX, but I am customer and think neither Disney + nor Peacock is real competition. The only real competition for NFLX right now is Amazon video. It would consider NFLX as a long of they were FCF positive, but they aren’t - they use $3B in cash annually right now. They do gain a lot of customer and it is sort of understandable , since they need to pay for content upfront, but I would rather stick with business models that generate FCF and can grow at the same time. NFLX right now can’t, but I don’t think it’s a great short either.

 

You've mentioned your concerns on MSGN, but for the sake of some Friday night chat, you have any thoughts on SBGI or FOX? Im digging around in those and they look good so far. Recent piece on CNBC(I forget exactly when) basically stated sports and live TV would soon pivot to being a desired asset to streaming co's. Those two kind of own that space.

 

I am long SBGI.  I like the local news and sports content which is unreplicsble by any of the streaming services. Basically live TV.  Sports speaks for itself.  Local content, I believe, is firmly undervalued. With newspapers in severe decline there really is no place to get local content other than the local networks. 

 

The company is trading at less than 4x free cash flow (not operating cash flow, free cash).  Very levered after the Fox Sports acquisition but actually low by historical standards for TV.  The breadth of geographic content and sports "must have" content gives them huge negotiating leverage with cable and OTT carriage. 

 

Throw in the fact that this election cycle will be bigger and start sooner than ever in history (apparently Trump spent 7 figures on the world series final alone - more than a year ahead of election).  Bodes well. 

[Guest cherzeca]

@dwy

 

I was thinking about SBGI in connection with this coming year's election advertising...could be a significant delta in revs and while the market discounts ahead, there is alway market movement based upon reported earnings when they are good (or bad).  I was thinking there will be not much  advertising bump for outlets like fox/cnn/msnbc because their programming is essentially political advertising.  do you see anybody other than SBGI getting a boost from election year advertising?

[Liberty]

Down below 80 pre mt, which will be around 19x LTM EPS. Dare I think a  buy at these levels? 19x earning??? Tech would pay 19x sales for this thing.

 

I won't invest based on it, but I'd say big tech is taking a close look at 19x.

 

Was just curious what the return would've been if someone had bought when this first post was posted.

 

About 1,615% in about 8 years, or 41.59% CAGR.

[Jurgis]

Down below 80 pre mt, which will be around 19x LTM EPS. Dare I think a  buy at these levels? 19x earning??? Tech would pay 19x sales for this thing.

 

I won't invest based on it, but I'd say big tech is taking a close look at 19x.

 

Was just curious what the return would've been if someone had bought when this first post was posted.

 

About 1,615% in about 8 years, or 41.59% CAGR.

 

Bought 10/11/2012, cost basis per share $9.44, +2,938.40% return.

 

On a beer size position.  :'(

[Liberty]

Bought 10/11/2012, cost basis per share $9.44, +2,938.40% return.

 

On a beer size position.  :'(

 

Well, you went from a beer to a good single malt. Not bad.

[Liberty]

Reed Hastings interview (30-mins)  at New York Times DealBook Conference – 11/6/2019:

 

[chrispy]

Has the video been taken down?

[nickenumbers]

Can someone explain to me a rational case of how NFLX can survive and justify it's stock price, now or in 10 years?

How can NFLX start to repay it's debt and stop borrowing to provide content.

 

Based on DCF and or a basic understanding of cashflow, I am confused at how this company stock price makes any sense.

 

Not some pie in the sky, super low probability future outcome, but a Rational Case that is probable [say greater than 65% of occuring].  Is there something that I am missing?

 

If it is just hype and irrational excitement over user growth, etc..  Tulip mania, wash and repeat.

 

[Maybe I am missing something obvious and important.]

 

Thank you COBF.

[Broeb22]

I think the best argument you can make is pricing and and a slowdown in content costs.

 

I just did some rough math from Netflix's quarterly financials, and if they increase price by about 2% annually, add 10% more subs per year (down from 20% growth), increase content costs at 5%, and grow marketing, G&A, and tech at 15%, Revenue approximately doubles from $20-40 billion over 5 years and content costs plus marketing, G&A, and tech only grow by 50% over 5 years to about $30 billion, leaving roughly $10 billion in EBITDA. which is only a ~25x multiple of today's EV.

 

The following 5 years cash flows more than double again and at that point they have 436 million paying subscribers, which leaves some still decent growth prospects going forward.

 

I'm not arguing that its cheap by any means, but this business is like the cable biz on steroids because they don't have the same level of capital intensity long-term. I feel pretty comfortable in saying the content costs growth will moderate over time, especially vs. cable company CapEx which always seemed until recently to have a new existential threat that necessitated continued investment and deferred generation of cash.

 

 

 

 

 

 

[LC]

but this business is like the cable biz on steroids because they don't have the same level of capital intensity long-term

This is a double edged sword, no?

 

The cable biz's capital intensity is what protects its competitive position. It almost never makes sense for a competitor to build duplicate line.

 

Where does netflix get this protection? Every contract renewal, I would imagine competitors have no problem bidding against each other for content to deliver via their own network.

[Broeb22]

but this business is like the cable biz on steroids because they don't have the same level of capital intensity long-term

This is a double edged sword, no?

 

The cable biz's capital intensity is what protects its competitive position. It almost never makes sense for a competitor to build duplicate line.

 

Where does netflix get this protection? Every contract renewal, I would imagine competitors have no problem bidding against each other for content to deliver via their own network.

 

Good point. I would agree with you on that.

 

I think at some point there are only a few competitors who could potentially compete with Netflix's scale and thus buying power. There are probably only a handful of businesses in the world who can pay what Netflix did for Shonda Rhimes and Ryan Murphy and live to tell the tale. The other thing Netflix has going for it relative to cable is the business scales globally so they can amortize the costs of content investments much more broadly than an upstart competitor might. Now if we're talking Amazon Prime or Disney Plus, they can take big swings in content too, but there are definitely some barriers to entry once you hit global scale.