Netflix

[Wildreamz]

Netflix did announce that they'd start doing buybacks once they pay down debt to the level they want.

[CY09]

Thats quite a prudent move considering they have $15 billion in debts.

They are quite a decent company which is able to produce $5 billion in cash before capital changes and before netting off cashflow due to investing activities.

At today's market cap of $170 billion, i am not even sure if they are worth current valuation. Even if they gradually pay off all the debts and become a $5 or even $10 billion dollar cash generating company from Ops (I assumed $10 billion as Netflix could raise subscription fee). The cashflow to market cap yield is 5.8% (assuming $10 billion cash flow generated). Even at current "depressed" price, it seems that its future growth has been baked into the share price.

Right now, I am paying for a company generating 2.9% cash yield to my purchased prices and I am hoping it will double or even triple its cash flow to match current expectations. To me, its quite a tall order unless they double subscription fee and lose very little customers in the process

I will only be interested in them when they are a $50-80 billion market cap company as the cash yield will be about 7-10%. There is a risk that their content may not be popular anymore as they need to keep having new ones to maintain market share

[Wildreamz]

It seems that you think that they could only increase profitability by increasing fees. No subscriber growth in your model at all? Currently Netflix only has 32mil subs in Asia-Pacific region (~2 bil population; excluding China and India (low income)). 

I think their total subscriber count can easily double from here (220mil) to 400mil+ at least, in 5 years. Not counting extra profit optionality through games and merchandising. And not including economies of scale (original content produced once, can be monetized over an increasingly larger audience base). In fact, their margins have been increasing since 2016 after their user base reached critical mass.

By my back of the envelope estimation, revenues could easily double from here in 5 years and profits triple. With room for surprise on the upside.

(not vested)

[CY09]

Subscriber growth yes but it wont be as fast as what you see in Europe and North America. Hence why i assumed revenue will double because of the twin effects of subscriber growth here while revenue increase in matured markets. However, the growth is limited as eventually you can capture all you can get

The entire Asia, a small percentage are connected to the internet (middle east many still are not that advanced). And for those market which are connected to the web (say South East Asia, Japan, Korea), they have to fight with Asian competitors (viu etc). This is why Netflix has not raised prices here because it acknowledged it has room to grow. However, this is not their home turf, they are more difficult opponents here and the markets are distinct due to the genre they consumer (they are doing well in South Korea but not in Japan)

Its very difficult to be able to tailor to all markets in Asia, as they are not as uniformed as China or America or Western Europe.

[Wildreamz]

Subscriber growth yes but it wont be as fast as what you see in Europe and North America. ..

Have you seen the numbers? Last quarter: https://hypercharts.co/nflx
North America +2% (2021Q4 = 75.2 mil ; 2020Q4 = 73.936mil)
Europe, Middle East and Africa +11% (2021Q4 = 74 mil ; 2020Q4 = 66.7 mil)
Asia-Pacific +28% (2021Q4 = 32.632 mil ; 2020Q4 = 25.492 mil).

Also, have you seen how fast Asian internet penetration have grown over recent years:
https://www.statista.com/statistics/2651...e-in-asia/

And even if they can't grow as fast as Europe / North America; the only thing that matter is that it grows fast enough, and the ceiling of growth before saturation is high enough (even 10% penetration of ~2 bil population Asia,  instead of 20% in North America region gets you to 200mil from Asia alone, excluding India and China).

We also haven't take into account spending power in emerging markets are also increasing at a much faster rate than developing countries.

[BlueKelah]

Subscriber growth yes but it wont be as fast as what you see in Europe and North America. ..

Have you seen the numbers? Last quarter: https://hypercharts.co/nflx
North America +2% (2021Q4 = 75.2 mil ; 2020Q4 = 73.936mil)
Europe, Middle East and Africa +11% (2021Q4 = 74 mil ; 2020Q4 = 66.7 mil)
Asia-Pacific +28% (2021Q4 = 32.632 mil ; 2020Q4 = 25.492 mil).

Also, have you seen how fast Asian internet penetration have grown over recent years:
https://www.statista.com/statistics/2651...e-in-asia/

And even if they can't grow as fast as Europe / North America; the only thing that matter is that it grows fast enough, and the ceiling of growth before saturation is high enough (even 10% penetration of ~2 bil population Asia,  instead of 20% in North America region gets you to 200mil from Asia alone, excluding India and China).

We also haven't take into account spending power in emerging markets are also increasing at a much faster rate than developing countries.

untapped market for netflic is definitely there in asia.
 
But 2billion pop doesnt mean 200m subscribers at 10% as most households would have more than 1 person. 

Also I watched a segment on cnbc i think last night, apparently theres some concern about disney+ and Warner HBO etc.. competing with their own streaming services.

All this is not important to bubbly tech valuations at the moment everything is being hit. Last night was another ugly night. Even the mighty apple and meta that do not have the lofty PEs have had like around 10%dip or more.

I wonder what the FED will say next week. Maybe packpedal a bit if markets crash more monday night..

[ongweehiang]

The problem on analysing companies which have either benefited or decimated by the pandemic is that it is hard to understand how much growth is sustainable or how much is being pulled forward.

The market is marking down as management give uncertainty to their projection which affect investor's perspective on the sustainability of the revenue growth and possible future income.

If the thesis is that Netflix would become one of the 3 or 4 global (ex-China) media streaming company, then the current pullback is a chance to buy a company that is truly sustainable for a very long time.

The main question is if Netflix still being the only D2C channel would know their customers better than those channel players like Roku or Amazon or Apple which is basically tied to their platform.

Would Netflix have the capability to produce and monetise their content better than others?

Their ability to continue scaling their production on a local-global basis would be a huge advantage which would be hard to replicate across other platform.

OWH
www.weightedresearch.com

[Wildreamz]

untapped market for netflic is definitely there in asia.
 
But 2billion pop doesnt mean 200m subscribers at 10% as most households would have more than 1 person. 
..

Hi BlueKelah,

10% approximation already accounted for that. In the UCAN market (US + Canada) penetration is about 20% (75mil subscribers 360mil total population). 10% is conservative.

[CY09]

A household unit in (US + Canada) and a household unit in Asia Pacific is quite different. South East Asia which forms a bulk of the population in question has household units of 4-5 family members. Quite different to US, where a renter model has resulted in 1-2 person to 1 household.

Secondly, technological adoption for SEA is not that high. Consuming Netflix is a luxury because these people are struggling more of their livelihood and rely on their TV for entertainment. The advancement of their TV will take a few more years before being Netflix enabled i wont dispute. Hence reaching the magical 10% is going to be a long time. Only Australia, New Zealand S. Korea, Japan, Singapore (200 million+ market size) is where they can hit 20%, outside of them i truly doubt, its that easy

[Wildreamz]

A household unit in (US + Canada) and a household unit in Asia Pacific is quite different. South East Asia which forms a bulk of the population in question has household units of 4-5 family members. Quite different to US, where a renter model has resulted in 1-2 person to 1 household.

Secondly, technological adoption for SEA is not that high. Consuming Netflix is a luxury because these people are struggling more of their livelihood and rely on their TV for entertainment. The advancement of their TV will take a few more years before being Netflix enabled i wont dispute. Hence reaching the magical 10% is going to be a long time. Only Australia, New Zealand S. Korea, Japan, Singapore (200 million+ market size) is where they can hit 20%, outside of them i truly doubt, its that easy

Hi CY09,

There is a few things to unpack here. First, I used a conservative 10% to account for the difference you described (income, household size). 

Secondly, I think the difference in household size is not as large as you think. In fact, average household size in the US is 2.5 (https://www.statista.com/statistics/1836...-in-the-us); average household size in Japan is 2.2 (https://www.statista.com/statistics/6061...-household); the average household size of South Korea is 2.3 (www.statista.com/statistics/995644/south-korea-household-distribution-by-number-of-members).

Thirdly, it's just an assumption that you only need 1 Netflix account per household. Anecdotally, my brother's household subscribes to 2x Netflix accounts because he occasionally watches different things as his wife. The time when the entire family members all sit-down together to watch the same thing in front of a TV might be long gone, especially for non-linear digital media like Netflix (anyone can watch anything at any place at anytime on any device).

Lastly, South East Asia growing much faster than you think, and will continue to grow over the next 5 years. Netflix is as much an emerging market growth play, as well as a technology play.

Peace.

(not vested)