Opinions
Jim Cramer - Mad Money
Netflix Inc.
NFLX-Q
BUY
Apr 22, 2024
Stock price when the opinion was issued
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Impressed by last week's quarterly results. Cracking down on password sharing is generating more revenue. Innovating by launching ad-supported versions. Geographic expansion. Aggressive investment in content. Has become a big free cashflow story.
Officially classified as a consumer discretionary stock, but he considers it more akin to a utility. A relatively inexpensive indulgence for the value it offers. Difficult macro headwinds would have minimal impact.
Meets a lot of his criteria but one -- it's not actually a capital-light business. Spends a lot on developing new content. A compounder. Well, and frugally, run. Investors would do well to read about the culture and the CEO. Dominates the space, market leader. Quite a bit of direct competition.
If you got in at favourable prices, stick with it. Strong company. One of the biggest mistakes investors make is that they "interrupt compounding unnecessarily" (paraphrased from Charlie Munger).
Is the leader in streaming. But you have to be a little wary of film accounting--you put the cash out front, but accountants will amortize that cost over time. So, earnings don't really reflect the true cash impact on an expanding portfolio of new releases. For a long time, NFLX was challenged on a cost basis, nor producing free cash. This is past and are now producing free cash.
Last Friday, shares sank 9% after they reported. Their Q1 looked good to him, though, with a huge subscriber beat (adding 9.33 million paid users) and revenue jumped 15% YOY. $2.14 billion cash flow was impressive, and the company offered great guidance for the next quarter. That said, the full-year revenue growth forecast seemed lacking, slightly below expectations, and management didn't raise its full-year free cash flow forecast. This suggests things will be worse in the second half of 2024. Also, they're getting hit by currency fluctuations, like the collapse of Argentina's peso. But starting next year, Netflix won't supply numbers about membership and average revenue per member, which really spooked the market and triggered the sell-off. He agrees that they revenues mean more now with the company, but it was a boneheaded move to hide this data. Overall, he's more bullish than bearish about Netflix. Memberships are up and their ad business is growing.