The entire stock market feels like its in a bubble.
Netflix stock gained more than 25% in the past one month. Their free cash flow (FCF) has been negative every single quarter and will be for many quarters to come. Stocks trade based on discounted cash flow(DCF). Netflix however produces no material return for investors and still majority of the analysts keep putting higher and higher price targets, its like they are collectively pushing a hidden agenda. It's as if there is this new way of valuing companies that is not based on DCF.
A lot of sophisticated financial people share your thinking.
The problem is there's no growth to be found anywhere. People are cheering for 3% GDP growth in the US. Interest rates are at all-time historical lows, meaning discount rates are lower than they've ever been.
These macro trends have added up to an environment where people are willing to pay staggering premiums for even a remote shot at growth. It's affecting every asset class from real estate to public market equity to early-stage startups to commodities, and you aren't the only one who's worried about it (I am).
Wall Street is now comfortable with the idea of very long-term tech investing and multiple consecutive years of no profit generation...
This is what Amazon has been doing for 20 years.
People don't buy Netflix stock because they think it's gonna be profitable tomorrow, but rather because they expect it to be so dominant that when they start generating profits, they would be massive.
> It's as if there is this new way of valuing companies that is not based on DCF.
Growth. Netflix is after a giant global market and investors would rather growth and investing in new content than a dividend. Yes, the stock has been on a tear, but they've also grown subscribers 25% YoY while also raising their prices. That's an impressive feat for a company already as large as Netflix.
I don't know why you are being downvoted. At some point you have to generate cash to justify your valuation. However if you look at amazon they have never generated cash relative to their valuation and its been like 20 something years.
It has returned 10x in the last 10 years so I don't think their investors are complaining.
If you look at google, facebook, and apple they are generating cash that would justify their valuations.
On the other hand, as long as the current streaming services' back catalog of available movies and TV shows is so ridiculously meagre, BitTorrent will do pretty well, I suspect.
I wonder who's going to supply that back catalog. Both Apple and Amazon have a fairly lackluster collection. For the real good stuff, there's FilmStruck (which has a small but revolving portion of the Criterion Collection), MUBI and Fandor. But it's pretty ridiculous that you have to subscribe to a combination of these to get access to quality media.
Meanwhile, companies like MGM and Warner Bros. are sitting on huge, underused back catalogs from their entire company history that's not available to watch, not even on DVD.
It's really a boom and bust. As Netflix's 3rd party library continue to be siphoned off more people will turn to piracy because they're not going to subscribe to n different services.
BitTorrent is not going away anytime soon. If anything, it's going to get stronger while every content creator and distributor has their own streaming service.
When streaming video started and became bigger, Netflix was seen as a single source for most content. Now, and in the future, this reality isn't going to hold good. It's already painful to figure out where one can watch a certain movie or show (apps like the TV app on Apple TV can help, but only if the streaming apps support it). Content keeps appearing and disappearing on different services and seems like a game of whack-a-mole!
BitTorrent's main draw is that it will always remain a single source (at least for relatively recent content) than any other streaming content provider can ever dream of! If at all torrent sites look like they're shutting down and don't have much activity, it's probably because all the activity with private trackers thriving is invisible. Yes, private trackers also get busted once in a while, but there are many that sprout up in the wake of one's demise. Whoever used the term "hydra" for this phenomenon was right.
Bottom line, as long as "big content" wants to haggle between themselves and focuses on making it inconvenient for customers to access content, BitTorrent will continue to thrive.
I don't think these services will affect Torrents in a significant way.
I know people who have Amazon prime,yet torrent some shows because they are censored heavily in my country.
Also, nflx doesn't offer some movies I want In my country, so I use torrents and haven't had any noticeable problem regarding seeds.
I study stock market for more than a decade, for long term, and I perfectly now that company data should not be analysed in a isolatedly, but, any stock with P/E ratio 230.24 you need to be very careful, and put just the money you can afford to lose without disturb your sleep.
For whom that does not understand company ratios, a P/E ratio 230.24 is meaning that you need 230 years of profits to return to you the price you are paying today, of course, this does not consider that the company and profits will grow. But to have a parallel, at least in my country, really good companies have a P/E between 20 and 30, on average, and 30 is considered very high.
This view ignores revenue growth. If the company is growing like a weed it may choose to reinvest everything and keep profit near zero. If there's no dividend the profit would just go into a war chest and collect some minimal interest rate. If the company thinks it can get a better return on investment by spending all income on growing itself it has every reason to do so, and all it has to do is beat that minimal interest rate. The only reasons not to: you have no ideas where to spend your own money to result in growth, you expect that reportable earnings will look good to some investors, you want a war chest to make some giant acquisitions, or you're planning on starting to issue a dividend relatively soon.
Amazon has always had near zero earnings. Over the last 10 years its grown from ~$17 billion revenue to ~$140 billion in revenue. Yet they have almost no earnings! Barely profitable! It's wild and irresponsible! Yet Amazon is not on the brink of collapse. Despite near 10x growth their earnings have always been completely flat, near zero. Why is that? They're not booking earnings because they can't, they're not booking earnings because they're choosing not to, by spending it on growing themselves. It could be seen as a good thing: Amazon has lots of areas to invest in itself, if they didn't, maybe they're running out of ideas. Netflix has also grown by about the same multiple over the same time period as Amazon.
Now, on the other hand, Netflix's price to sales is about twice that of Amazon. Amazon's price to sales is about the same as Apple.
I've held NFLX since 2013. I'd buy it again today, even at these prices.
My view is that profits are low because NFLX is investing everything in original content.Their last 4 quarters of profit is about $550 million. But their spend on original content is expected to be $7 - $8 Billion in 2018 [0]. Theoretically, that $7 - 8 Billion, less income tax, could fall to the bottom line, putting their P/E in a much more reasonable ~20 range.
AMZN is taking the same strategy: Invest in growth above all else and defer profits until the company is 'huge'. Moreover, for NFLX, revenue growth is accelerating (+23% 2016 vs. +30% 2017). Given the performance of management, both at NFLX and AMZN, it's a reasonable calculated risk to buy shares, even today, even at these outrageous prices.
This is nonsense. P/E is a measure of earnings against the price of one share. A high P/E does show that current earnings are small (or negative) in relation to share price, but there's no time component inherent in P/E.
Finding Netflix fairly frustrating these days. Despite their runaway success they haven’t really done anything to change the Hollywood model. 99.9% crap with a sprinkle of watchable content. And despite the hoards of engineers and machine learning wizards they employ, discovery and interface has regressed in their product. Only reason I haven’t canceled yet is avoiding the hassle of going full torrent/YouTube.
Wanna see what a full blown network effect looks like, kidos — check out Netflix earnings.
More Subscribers ⤵️
More Revenue ⤵️
More $$ for Original Content and Licensing ⤵️
More bids won against networks ⤵️
More content on Netflix ⤵️
More Subscribers
Surprised Netflix hasn't branched out into more content types or more dynamic content. You now have this two way communication channel seems kind of boring to not try and use it even just for mostly video content.
Some of their shows run 7+ million an episode. If you look at the development costs of simple mobile games and cut out all the stuff related to IAP it seems like they could create a lot of value for customers for pretty cheap by making some simple popular games without the IAP BS.
Are more people going to subscribe to Netflix because of this? Will they be distracted from the core business? Building a streaming video service is very different from building games of any sort, do they want to dilute their talent by going out and hiring for this?
Sorry but I just don't see how this in any makes sense other than, "hey Netflix is doing really well, why don't they pull a Google and start throwing spaghetti at the wall".
Good content is evergreen and the more content they create, they increase the incentive fgor people to subscribe. You can also create content once and automate creating compatible devices for everything. Games come and go, but House of Cards Season 1 is still a reason to subscribe to Netflix today. Think how many people are still discovering The Wire for the first time on HBO Now.
There's a bubble. A bubble of desperation. You can't put your money in the bank due to the low interest rates. Traditional businesses are not doing well. Investors are desperate to put their money to work. So we see bubbles in tech, bubbles in cryptocurrencies, bubbles in startups.
Best to watch what the legendary investors are doing. People like Warren Buffett, Prem Watsa, and the likes.
The price-to-earnings ratio is now 230, meaning that if an acquirer were to buy the company for cash at its current market capitalization, absent any growth in earnings, it would take the acquirer 230 years to earn the money back, all else remaining the same.
However, the 230-year figure might be optimistic, because Netflix's cash flow from operations, before capital expenditures, has been negative for the past three years, largely due to fast-growing spending on content. Operations burned almost $1.8 billion last year. It could take longer than 230 years.
In theory, Netflix could stop aggressively investing in content any time now, and it would become more profitable. In theory, they could find other ways to monetize the content at some unspecified time in the future, to generate additional profits. In theory. In reality, it remains to be seen if they can and will do those things at some point in the future, and whether doing them will justify today's market capitalization.
It is, how shall I say this, questionable whether Netflix will be able to generate sufficient cash flow in the future to justify today's market capitalization. That said, I love the service and think the management team has done an amazing job building it, so I hope and wish they can pull it off, for the sake of their current investors, who must be relying on similar hopes and wishes.
BTW, Netflix is far from the most optimistically valued company today in terms of current earnings. Amazon's price-to-earnings multiple is currently 335, and Salesforce's is 14,796. These are not particularly unusual examples in today's stock market. There quite a few companies trading at high-double, triple, quadruple, and quintuple multiples of earnings.
In other words, there are currently many companies whose earnings-payback period, for a would-be cash acquirer, all else remaining the same, is in the many decades, centuries, millennia, or even greater. It makes no sense to me.
Wonder why Q4 had such a big bump but Q1 2018 seems to be dropping back down to prior levels. Is this just people purchasing subscriptions at the holiday? Discounts? Special content?
Can we infer from this that at the end of Q3 they had ~25 million subscribers?
I am not planning to cancel Netflix but I am frustrated at how terrible most of the content is, and how hard it is to find anything with the current interface. I hope they're rethinking their UX and reconsidering their current approach of "License a bunch of really cheap awful content to make it seem like there's a lot of stuff to watch."
Disney is pulling/will pull out a lot of stuff from Netflix[1] and will also start its own streaming service[2]... and Netflix' catalog had already shrunk a lot before that news[3].
These days I prefer Amazon video content. It's also significantly cheaper. 5 bucks instead of 20. Then you add the fact that their Android app is bad and that not even Netflix Originals are available globally, Netflix doesn't seem to be that great.
My biggest problem with Netflix is discovery. I don't want to watch a new show because I don't want to commit myself to 50 episodes. And I don't even know if I'll like the show.
I just want to channel surf, like on TV. Just let me press a button and let me go through a bunch of videos so I can decide which one I like by watching it
How do they make money?? I mean - seriously? And how will they stand up now that NN is gone and any company/website using much more traffic will be force to pay more?
Please help me with the math -- at any given day, me, my wife and 2 kids are streaming netflix on multiple devices in HD; most likely pulling tens of gigabytes of data per day. How is that all covered under $10.99 per month?? and on the top - they make solid profit?? HOW??
They used to spend $0.05 per GB more or less per movie. I'm sure it's lower now. You may be a power streamer, but some people don't use it as much. The major cost used to be content licensing, but they are content creators now. Their top shows are becoming classics, drive tons of subscribers, and help with retention. The most important part is that they are still growing.
The problem is that if you're big enough business-wise you don't care that much about NN. It's like in Germany when Google has to pay for content in Google News and they just tell the publishers they will not include them if they don't give it to them for free despite these new rules (which are stupid). But if you're a small startup or company and you want to do this you have no chance doing this. Same goes for NN. If someone wants to block Google or Netflix now they can't really get that much from them because they need them to sell their own product or otherwise people will leave. If you're small no-one cares and your can't do anything about it. So it hurts innovation from new companies but doesn't hurt any big established players.
Besides that they also have enough revenue to invest in their own fiber infrastructure like Google does and really everyone wants to get good access to their content so they connect to them.
Delivery of video bits costs next to nothing compared to the content. Netflix will spend 8 billion on content next year. They won't come within even an order of magnitude of that on infrastructure.
[+] [-] anilshanbhag|8 years ago|reply
[+] [-] eldavido|8 years ago|reply
The problem is there's no growth to be found anywhere. People are cheering for 3% GDP growth in the US. Interest rates are at all-time historical lows, meaning discount rates are lower than they've ever been.
These macro trends have added up to an environment where people are willing to pay staggering premiums for even a remote shot at growth. It's affecting every asset class from real estate to public market equity to early-stage startups to commodities, and you aren't the only one who's worried about it (I am).
[+] [-] whoisjuan|8 years ago|reply
This is what Amazon has been doing for 20 years. People don't buy Netflix stock because they think it's gonna be profitable tomorrow, but rather because they expect it to be so dominant that when they start generating profits, they would be massive.
[+] [-] jonknee|8 years ago|reply
Growth. Netflix is after a giant global market and investors would rather growth and investing in new content than a dividend. Yes, the stock has been on a tear, but they've also grown subscribers 25% YoY while also raising their prices. That's an impressive feat for a company already as large as Netflix.
[+] [-] samfisher83|8 years ago|reply
It has returned 10x in the last 10 years so I don't think their investors are complaining.
If you look at google, facebook, and apple they are generating cash that would justify their valuations.
[+] [-] amelius|8 years ago|reply
[+] [-] lobster_johnson|8 years ago|reply
I wonder who's going to supply that back catalog. Both Apple and Amazon have a fairly lackluster collection. For the real good stuff, there's FilmStruck (which has a small but revolving portion of the Criterion Collection), MUBI and Fandor. But it's pretty ridiculous that you have to subscribe to a combination of these to get access to quality media.
Meanwhile, companies like MGM and Warner Bros. are sitting on huge, underused back catalogs from their entire company history that's not available to watch, not even on DVD.
[+] [-] Spivak|8 years ago|reply
[+] [-] newscracker|8 years ago|reply
When streaming video started and became bigger, Netflix was seen as a single source for most content. Now, and in the future, this reality isn't going to hold good. It's already painful to figure out where one can watch a certain movie or show (apps like the TV app on Apple TV can help, but only if the streaming apps support it). Content keeps appearing and disappearing on different services and seems like a game of whack-a-mole!
BitTorrent's main draw is that it will always remain a single source (at least for relatively recent content) than any other streaming content provider can ever dream of! If at all torrent sites look like they're shutting down and don't have much activity, it's probably because all the activity with private trackers thriving is invisible. Yes, private trackers also get busted once in a while, but there are many that sprout up in the wake of one's demise. Whoever used the term "hydra" for this phenomenon was right.
Bottom line, as long as "big content" wants to haggle between themselves and focuses on making it inconvenient for customers to access content, BitTorrent will continue to thrive.
[+] [-] mehly|8 years ago|reply
[+] [-] 65934|8 years ago|reply
Also, nflx doesn't offer some movies I want In my country, so I use torrents and haven't had any noticeable problem regarding seeds.
[+] [-] beedogs|8 years ago|reply
[+] [-] sotojuan|8 years ago|reply
[+] [-] 21|8 years ago|reply
I'm watching a 2013 TV Series, it's not on Netflix, and I can't find any seeds for it.
[+] [-] chocolatebunny|8 years ago|reply
[+] [-] edpichler|8 years ago|reply
For whom that does not understand company ratios, a P/E ratio 230.24 is meaning that you need 230 years of profits to return to you the price you are paying today, of course, this does not consider that the company and profits will grow. But to have a parallel, at least in my country, really good companies have a P/E between 20 and 30, on average, and 30 is considered very high.
[+] [-] nerfhammer|8 years ago|reply
Amazon has always had near zero earnings. Over the last 10 years its grown from ~$17 billion revenue to ~$140 billion in revenue. Yet they have almost no earnings! Barely profitable! It's wild and irresponsible! Yet Amazon is not on the brink of collapse. Despite near 10x growth their earnings have always been completely flat, near zero. Why is that? They're not booking earnings because they can't, they're not booking earnings because they're choosing not to, by spending it on growing themselves. It could be seen as a good thing: Amazon has lots of areas to invest in itself, if they didn't, maybe they're running out of ideas. Netflix has also grown by about the same multiple over the same time period as Amazon.
Now, on the other hand, Netflix's price to sales is about twice that of Amazon. Amazon's price to sales is about the same as Apple.
[+] [-] 11thEarlOfMar|8 years ago|reply
My view is that profits are low because NFLX is investing everything in original content.Their last 4 quarters of profit is about $550 million. But their spend on original content is expected to be $7 - $8 Billion in 2018 [0]. Theoretically, that $7 - 8 Billion, less income tax, could fall to the bottom line, putting their P/E in a much more reasonable ~20 range.
AMZN is taking the same strategy: Invest in growth above all else and defer profits until the company is 'huge'. Moreover, for NFLX, revenue growth is accelerating (+23% 2016 vs. +30% 2017). Given the performance of management, both at NFLX and AMZN, it's a reasonable calculated risk to buy shares, even today, even at these outrageous prices.
[0] http://www.adweek.com/tv-video/netflix-is-increasing-its-spe...
[+] [-] brown9-2|8 years ago|reply
[+] [-] aoeusnth1|8 years ago|reply
[+] [-] mobilefriendly|8 years ago|reply
[+] [-] bulldoa|8 years ago|reply
[+] [-] rajacombinator|8 years ago|reply
[+] [-] nkrode|8 years ago|reply
More Subscribers ⤵️ More Revenue ⤵️ More $$ for Original Content and Licensing ⤵️ More bids won against networks ⤵️ More content on Netflix ⤵️ More Subscribers
[+] [-] nimos|8 years ago|reply
Some of their shows run 7+ million an episode. If you look at the development costs of simple mobile games and cut out all the stuff related to IAP it seems like they could create a lot of value for customers for pretty cheap by making some simple popular games without the IAP BS.
[+] [-] dasil003|8 years ago|reply
Sorry but I just don't see how this in any makes sense other than, "hey Netflix is doing really well, why don't they pull a Google and start throwing spaghetti at the wall".
[+] [-] skinnymuch|8 years ago|reply
[+] [-] scarface74|8 years ago|reply
[+] [-] niwde|8 years ago|reply
Best to watch what the legendary investors are doing. People like Warren Buffett, Prem Watsa, and the likes.
[+] [-] cs702|8 years ago|reply
However, the 230-year figure might be optimistic, because Netflix's cash flow from operations, before capital expenditures, has been negative for the past three years, largely due to fast-growing spending on content. Operations burned almost $1.8 billion last year. It could take longer than 230 years.
In theory, Netflix could stop aggressively investing in content any time now, and it would become more profitable. In theory, they could find other ways to monetize the content at some unspecified time in the future, to generate additional profits. In theory. In reality, it remains to be seen if they can and will do those things at some point in the future, and whether doing them will justify today's market capitalization.
It is, how shall I say this, questionable whether Netflix will be able to generate sufficient cash flow in the future to justify today's market capitalization. That said, I love the service and think the management team has done an amazing job building it, so I hope and wish they can pull it off, for the sake of their current investors, who must be relying on similar hopes and wishes.
BTW, Netflix is far from the most optimistically valued company today in terms of current earnings. Amazon's price-to-earnings multiple is currently 335, and Salesforce's is 14,796. These are not particularly unusual examples in today's stock market. There quite a few companies trading at high-double, triple, quadruple, and quintuple multiples of earnings.
In other words, there are currently many companies whose earnings-payback period, for a would-be cash acquirer, all else remaining the same, is in the many decades, centuries, millennia, or even greater. It makes no sense to me.
Source for all figures: https://finance.google.com
[+] [-] kosei|8 years ago|reply
[+] [-] ebbv|8 years ago|reply
I am not planning to cancel Netflix but I am frustrated at how terrible most of the content is, and how hard it is to find anything with the current interface. I hope they're rethinking their UX and reconsidering their current approach of "License a bunch of really cheap awful content to make it seem like there's a lot of stuff to watch."
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] bluthru|8 years ago|reply
[+] [-] yorby|8 years ago|reply
1.https://www.cnbc.com/2017/08/08/disney-will-pull-its-movies-...
2. https://www.nbcnews.com/pop-culture/tv/disney-start-own-stre...
3. http://www.businessinsider.com/netflix-catalog-size-shrinks-...
[+] [-] rado|8 years ago|reply
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] chrisper|8 years ago|reply
[+] [-] puranjay|8 years ago|reply
I just want to channel surf, like on TV. Just let me press a button and let me go through a bunch of videos so I can decide which one I like by watching it
[+] [-] ourmandave|8 years ago|reply
(* which is to say last week.)
[+] [-] oh_sigh|8 years ago|reply
[+] [-] donquichotte|8 years ago|reply
[+] [-] joering2|8 years ago|reply
Please help me with the math -- at any given day, me, my wife and 2 kids are streaming netflix on multiple devices in HD; most likely pulling tens of gigabytes of data per day. How is that all covered under $10.99 per month?? and on the top - they make solid profit?? HOW??
[+] [-] ricardonunez|8 years ago|reply
[+] [-] tomaha|8 years ago|reply
Besides that they also have enough revenue to invest in their own fiber infrastructure like Google does and really everyone wants to get good access to their content so they connect to them.
[+] [-] jonknee|8 years ago|reply
https://media.netflix.com/en/company-blog/how-netflix-works-...
[+] [-] spyspy|8 years ago|reply
[+] [-] borplk|8 years ago|reply
[+] [-] jedberg|8 years ago|reply
[+] [-] TeMPOraL|8 years ago|reply