Opinions
Bruce Murray
Netflix Inc.
NFLX-Q
BUY
Sep 18, 2018
Stock price when the opinion was issued
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Did everything right, yet down today ~4%. Expectations have been set very high for the traditional growthy and earnings momentum names. If everybody owns the stock, what's your next move? Someone out there didn't like what they saw and hit the sell button, and then it's just investor psychology at work.
He wrote a covered call on half his position before the report. Sold to open the July 25th $1,245 strike for $57 or 130% annualized (1-week calls). Close this morning at the open for $12 and netted $45 profit. Loves it long term, hold forever.
They just reported. They grew revenues by 16%, slightly beating, revenue growth is driven by higher subscription prices, and operating margins beat slightly. Blockbuster releases included season 2 of Squid Games and the new Tyler Perry movie. They also gave great guidance for this quarter. But expectations were sky high, and audience engagement as up only 1% this year, disappointing the street, which thought future growth could slow. They sold off, because shares came into the quarter too hot. The conference call outlined exciting growth to come, including use of AI they just started to use in content. Remains best of breed in streaming.
Leader in the streaming market. Content library continues to grow, with local content in different countries, and that's supporting rapid international growth. Revenue for fiscal 2026 expected to exceed $50B USD, driven by global expansion. Ad-supported tier has been very successful, as has password-sharing crackdown. Strong financial performance, with revenues accelerating and margins expanding.
40x forward PE, but 27-30% expected growth rate. Tech company, but great valuation. No dividend.
This has 130 million subscribers globally and there are 1.2 billion cable company subscribers. There’s a long way to go in market penetration. He sees it as still being in a growth phase and compares this to Amazon 10 years ago. After they start running out of new subscribers to add, they can increase revenue through pricing leverage. They are currently very liberal in terms of how many people can watch shows through the same subscription at the same time. Tightening that can raise revenue. They are the first mover in a growing space. He has only a small position but believes it has significant upside over many years.