Tag Archives: Netflix

FANGMAN Stocks Plunge 4.4% Today, Down $905 Billion, or 20%, since Aug. 31, by Wolf Richter

The so-called FANGMAN stocks are having a rough go of it recently. From Wolf Richter at wolfstreet.com:

It gets costly when the entire market depends on a handful of over-hyped mega-caps.

For the beginning of Thanksgiving week, it was a little messy today in the stock market, with the Nasdaq dropping 3% to 7,028. It’s down 13.6% from its peak at the end of August. But it’s still up 1.8% year-to-date, so nothing serious has happened yet, just some of the gains this year have turned out to be head-fakes.

Folks who went through the wholesale Nasdaq destruction of 2000-2002 will just smile mildly because that’s when the Nasdaq, as the dotcom bubble imploded, lost 78%. Given our Everything Bubble is even bigger and crazier, the Nasdaq’s current sell-off barely registers on my own Richter scale, so to speak.

The Dow fell 1.6%, is down just 7.2% from its peak, and for the year is clinging to a 1.2% gain.

And the S&P 500 dropped 1.7% today and is down 8.5% from the peak. It too remains, if by the thinnest margin, in the green for the year.

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Is Netflix being run by the United States Congress? by Simon Black

Fiscally, Netflix runs a lot like a government, going deeper in debt every day. From Simon Black at sovereignman.com:

Shares of Netflix soared today on news the company lost a record $859 million in cash in the third quarter.

Why are investors applauding this egregious destruction of capital?

Well, it’s because investors only look at one number when Netflix reports earnings – subscriber growth.

And on that metric, the company outperformed, adding 6.96 million subscribers, bringing the global total to more than 137 million.

At 137 million subscribers, Netflix has about 2% of the global population as customers.

There are still around 90 million traditional TV accounts in the US (and about 36% of those also have a streaming account).

So there’s definitely room for Netflix to grow in the US and abroad (where the majority of growth is coming today).

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Netflix lost $17.8 million for each of its 112 Emmy nominations, by Simon Black

Two companies that lose tons of money but nevertheless have sky-high stock markets—Netflix and Tesla—will one day be seen as symbols of our insane age and insane finances. From Simon Black at sovereignman.com:

It was only a few day ago that Netflix was riding high.

The streaming company had been nominated for a whopping 112 Emmy awards, more than any other network.

And they’d further managed to unseat HBO’s 17-year reign as the undisputed king of Emmy nominations.

That’s all fine and good. Netflix certainly has some great shows.

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But reality started to set in yesterday afternoon when the company reported its quarterly financial results… and the numbers were definitely two thumbs down.

For some painfully idiotic reason, analysts seem to judge Netflix by a single benchmark: the number of subscribers.

If subscriber growth is strong, Netflix stock soars.

I say this is ‘painfully idiotic’ because Netflix loses money year after year. The more subscribers they bring in, the more money they lose.

At the end of 2015, for example, Netflix had 75 million subscribers. But its Free Cash Flow was NEGATIVE $920 million.

The following year, Netflix had grown its subscriber base to 93 million. Yet its Free Cash Flow had sunk even further to negative $1.65 billion.

By the end of 2017, Netflix subscribers totaled 117 million. But the company burned through $2.02 billion.

So when you do the math, you see that each Emmy nomination this year cost Netflix $17.8 million.

That’s a lot worst than last year, when Netflix’s 92 nominations at the 2017 awards cost them $16.0 million.

Clearly the more ‘successful’ Netflix becomes, whether in the quality of its content, or in attracting subscribers, the more money they lose.

Yet the stock surges ever higher. It’s truly bizarre.

Well, it all came crashing down yesterday when Netflix announced growth figures that no longer defied gravity.

Total subscribers came in at below the level that analysts had forecast… and the selling began almost immediately.

To continue reading: Netflix lost $17.8 million for each of its 112 Emmy nominations

Netflixonomics: Cash-Burning Machine Blows Billions On Content In ‘Winner-Takes-Most’ Race, by Tyler Durden

Like Tesla, the more “successful” Netflix is the deeper the financial hole it digs itself. From Tyler Durden at zerohedge.com:

When Netflix published its third-quarter earnings last October, Ted Sarandos, Netflix’s chief content officer forecasted it would spend roughly $7 billion to $8 billion on original content in 2018.

The Economist, quoting a recent Goldman Sachs equity assessment, states that Netflix could spend $12 billion to $13 billion on original content, which is more than any studio or television network spends on films or shows that are not sports related.

According to the IndieWire, Netflix will roll out 82 feature films within the year, including Noah Baumbach’s “The Meyerowitz Stories” follow-up starring Scarlett Johansson and Adam Driver, and the Sandra Bullock thriller “Bird Box,” while Warner Bros. and Disney will respectively release 23 and ten films to cinemas.

The company is even producing or procuring more than 700 new or exclusively licensed television shows, including 100 scripted dramas and comedies, dozens of documentaries and children’s shows, stand-up comedy specials and unscripted reality and talk shows.

Moreover, its ambitions of global domination are now being realized, as current productions are underway in 21 countries, including Brazil, Germany, India, and South Korea.

In the first quarter of this year, Netflix had 125 million subscribers worldwide, 57 million of them in America. In 2016, the company’s global membership grew 48 percent; last year’s gain was 42 percent. With an average subscription of $10 a month, those customers represent some $14 billion in annual revenue which the company recycles the money back into programming, marketing, and technology—along with billions it must borrow to keep the scheme going.

Goldman analysts believe Netflix could spend an annual $22.5 billion on content by 2022. That would be collectively more than all entertainment spending by all U.S. networks and cable companies.

“We believe the growing content offering and expanding distribution ecosystem will continue to drive subscriber growth above consensus expectations. Based on the pace of both, we’re raising our revenue estimates and price target,” Goldman Sachs analyst Heath Terry wrote in a note to clients Wednesday.

“We believe Netflix’s ability to spend significantly more on customer acquisition while still producing ~4pps of operating margin expansion for the full year, on our estimates, will allow the company to drive additional subscriber growth, particularly in markets where the company’s brand presence isn’t as strong as it is in the U.S.,” he said.

The market values Netflix at $176 billion (as of July 06), which is more than CBS, Comcast, Disney, Twenty-First Century Fox, and Viacom. The Economist notes that some equity analysts recognize the high market capitalization as ridiculous because the company lacks profit, coupled with an enormous $8.5 billion debt load and limited media track record.

To continue reading: Netflixonomics: Cash-Burning Machine Blows Billions On Content In ‘Winner-Takes-Most’ Race

Capitalism has new rules. And they’re seriously messed up. By Simon Black

So-called investors throw cash at companies that burn through it and haven’t a clue as to when they might turn a profit. From Simon Black at sovereignman.com:

It was just a month and a half ago that Tesla approved an eye-popping long-term pay package, worth as much as $50 BILLION to founder and CEO Elon Musk.

And on Wednesday afternoon, Tesla held its first corporate earnings call since then.

You’d think that Elon would have been gracious and professional, anxious to demonstrate that the shareholders’ trust in him has been well-placed.

Instead the call was filled with contempt and disrespect, with Elon outright refusing to answer questions that he deemed ‘boring’.

Bear in mind, Tesla’s financial results were gruesome; the company burned through yet another $1.1 billion in cash last quarter. That’s 70% worse than in the same period last year.

Even more problematic, Tesla is losing money at such an unexpectedly fast rate that they’ll likely run out within the next several months.

According to the Wall Street Journal’s analysis, Tesla doesn’t have enough cash to cover its basic debt payments and capital leases due within the next six months.

Needless to say, investors are worried.

The shareholders and analysts on the call kept pressing Elon to explain how the company was going to survive, and how he would turn around Tesla’s notorious production challenges.

But Elon completely dismissed any such questions as “boring”, “bonehead”, and “not cool”.

Pretty amazing.

I mean, this guy was given a potentially $50 billion compensation package just six weeks ago.

So the LEAST he could do was answer his investors’ completely reasonable questions.

But he didn’t. It’s almost as if he deliberately wanted to show as much disrespect as possible to the trust and confidence that shareholders have placed in him.

This is a pretty despicable attitude for any executive to have.

Yet this whole situation is emblematic of what I call ‘the new rules of capitalism.’

And New Rule #1 is: Businesses no longer need to make money.

Tesla is just one of a multitude of high-flying, hot-shot companies whose entire business models are based on burning through cash, managed by executives who don’t care.

WeWork, as we’ve often discussed, is an even more absurd example.

WeWork provides short-term office space to companies around the world, with a whole bunch of interesting perks (including free tequila).

For customers, it’s great. But WeWork loses tons of money providing all those great perks to its customers… which means that investors are ultimately footing the bill.

To continue reading: Capitalism has new rules. And they’re seriously messed up.

Junk-rated Netflix Borrows $1.9 Bn, Most Ever, in “Drive-By” Bond Issue, to Burn $3-$4 Bn in 2018, Debt Soars to $8.4 billion, by Wolf Richter

It’s hard to see how going deeper in debt every year is a viable business model, but Netflix has made it work…so far. From Wolf Richter at wolfstreet.com:

This junk-bond market is in peak-bubble mode, and Netflix is just doing what investors want it to do. 

Wow, that was fast and huge. After announcing this morning that an investor call was scheduled to try sell a “drive-by” issue of $1.5 billion in 10.5-year bonds that S&P rates four notches into junk (B+) and Moody’s three notches into junk (Ba3), Netflix found insatiable investor demand and sold an additional $400 million, for a total of $1.9 billion, Netflix’s largest bond offering ever.

The investment banks running the deal were Morgan Stanley, Goldman Sachs, J.P. Morgan, Deutsche Bank, and Wells Fargo. The notes, which mature on November 15, 2028, priced at a yield of 5.875%, just 291 basis points over the equivalent US Treasury yield, according to S&P Global Market Intelligence.

This comes just six month after Netflix borrowed $1.6 billion in 4.875% bonds due in April 2028. And earlier in 2017, it had sold €1.3 billion of 10-year unsecured junk bonds in Euroland at a yield of 3.625%, bringing its total issuance in 2017 to about $3 billion. So interest rates are rising, debt is getting more expensive, and there’s a lot more debt, but it doesn’t matter to Netflix investors.

Last week, Netflix reported total long-term debt of $6.5 billion as of March 31. With the $1.9 billion just added, it now has $8.4 billion in long-term debt.

This is in addition to current and noncurrent “content liabilities” of nearly $8 billion. This company is rated deep into junk for a reason.

And it’s going to get a lot worse. In its earnings report last week, it disclosed that its negative “free cash flow” – a measure of the amount of cash it burns – of -$287 million was “less negative than we expected due to content payment timing differences.” In the prior quarter, it had booked negative free cash flow of -$524 million.

In total, it forecasts to be “free-cash-flow negative” between -$3 billion and -$4 billion in 2018. So the next quarters, when the “timing differences” are reversing, the negative free cash flow is going to be a doozie. And it also disclosed that it would be “free cash flow negative for several more years as our original content spend rapidly grows.”

To continue reading: Junk-rated Netflix Borrows $1.9 Bn, Most Ever, in “Drive-By” Bond Issue, to Burn $3-$4 Bn in 2018, Debt Soars to $8.4 billion

Net Neutrality – The End of Google’s Biggest Subsidy, by Tom Luongo

It turns out net neutrality has been a godsend for the bandwith hogs. From Tom Luongo at tomluongo.me:

Net Neutrality is gone.  Good riddance.

Lost in all of the theoretical debate about how evil ISPs will create a have/have-not divide in Internet access, is the reality that it already exists along with massive subsidies to the biggest bandwidth pigs on the planet – Facebook, Google, Twitter, Netflix and the porn industry.

Under Net Neutrality these platforms flourished along with the rise of the mobile internet, which is now arguably more important than the ‘desktop’ one in your home and office.  Google and Apple control the on-ramps to the mobile web in a way that Net Neutrality proponents can only dream the bandwidth providers like Comcast and AT&T could.

Because, in truth, they can’t.  Consumers are ultimately the ones who decide how much bandwidth costs, not the ISPs.  We decide how much we can afford these creature comforts like streaming Netflix while riding the bus or doing self-indulgent Instagram videos of our standing in line at the movies (if that’s even a thing anymore).

Non-Neutrality Pricing

Net Neutrality took pricing of bandwidth out of the hands of consumers.  It handed the profits from it to Google, Facebook and all the crappy advertisers spamming video ads, malware, scams, and the like everywhere.

By mandating ‘equal access’ and equal fee structures the advertisers behind Google and Facebook would spend their budgets without much thought or care.  Google and Facebook ad revenue soared under Net Neutrality because advertisers’ needs are not aligned with Google’s bottom line, but with consumers’.

And, because of that, the price paid to deliver the ad, i.e. Google’s cost of goods sold (COGS), thanks to Net Neutrality, was held artificially low.  And Google, Facebook and the Porn Industry pocketed the difference.

They grew uncontrollably.  In the case of Google and Facebook, uncontrollably powerful.

That difference was never passed onto the ISP who could then, in turn, pass it on to the consumer.

All thanks to Net Neutrality.

To continue reading: Net Neutrality – The End of Google’s Biggest Subsidy