Category Archives: $NFLX

$NFLX – $100bn market cap now – can it go higher?

Back in 2015, posted that $NFLX could reach a $100bn if you look a the total addressable market the company could tap with its great streaming service and content.

The post mentioned it could get to 320 million subs and be worth $100bn – well it has reached $100bn with only 120 million subs! So $100bn estimate vs. 320 million subs could be too low … $NFLX could easily reach $150bn market cap, and perhaps even $200billion over the next 2 years.

If you are long stick with $NFLX – traditional valuation methods do not work with companies like $NFLX and $AMZN as they need to invest heavily to grow into something serious – companies which keep wall street happy by declaring great earnings per share in the early stages, will never become great, so always have a different perspective when looking at companies which have the potential to dominate the world.

$NFLX, $MS – good results, strong rebound after last quarter ….

Netflix and Morgan Stanley reported great results this week.

2Centview has core positions in both these names, and tweeted after they reported terrible quarters that Management should be given time to address issues – Patience is good trait in investing – hold quality companies for the long term.

Morgan Stanley – which has had activist investor ValuAct take a large stake, reported a great quarter – even in fixed income trading where costs were cut 25%. Wealth management continues to be strong and Gorman is doing a great job. 2CentView FV = $36, yield 2%. Hold – ValuAct thinks the business is very undervalued.

NetFlix – which dropped to the mid-80s’ after reporting a tough quarter in Q2, popped 20% in one day! Reed Hastings is a great CEO – he is betting BIG by spending huge on 1000 hours of original content – he wants to at least double the subscribers over the next 3 years – they are now in 130 countries…if his bet pays off, $NFLX could be easily be a $100 billion dollar company – see below:

Hold good quality companies with great visionary CEOs for the long term – the path to success will take time and will not be a straight line!

2CentView Performance in 2015

The 2CentView portfolio was up 1.5% and flat if you exclude dividends for 2015, which matched the S&P500 but above the FTSE100 which was down 5%.

The portfolio was up nearly 10% mid year, but then the Chinese stock market plunged and was followed an amazing drop in commodity and oil prices, the scale of which no one predicted, sees stocks like Anglo American, Glencore and BHP Billiton drop to record lows.

The objective of the 2CentView system is to outperform the index in rising markets and be at least in line when the major index is flat or falls up to 20%, and outperform if the market corrects more than 20%. The portfolio is benchmarked vs. the SP500 (50%, flat ) and FTSE100(50%, down 5%), so the outperformed by 2,5% in a flat year. Overall return since 2013, 74%.

The exposure to USD/GBP exchange rate is also something to keep an eye on – and 2CentView started using the PUS3 3x Leverage ETFS Short USD, Long GBP to hedge foreign exchange risk, locking in at 1.52.

Where it did badly:
2 Core positions were savaged – SAVE (down 60%), $YHOO (down 50%), $TWTR (down 50%) which cost the portfolio nearly 5% – 2CentView exited these positions, when the 50% threshold was hit. $ACA (Acacia Mining – Gold) was also down 40% due to lower gold prices.

Trades in $AMBA (Amberalla), $GNW (Genworth),$KORS (Michael Kors), $BHP (BHP Billiton) and $AAL (Anglo American) were all stopped out. In the case of $GNW, $BHP and $AAL, these stocks continued to fall and the stop loss system saved the portfolio from losing a lot of money.

Trades in $FIT (FITBIT), $HSBC were hit their targets and were profitable.

Core positions which did well: $FB up 40%, $MRKT, $DLG (Direct Line, up 30%+dividends),$NFLX (NetFlix), $TWOD (Taylor Wimpey, up 50%), $GOOGL up 60%.

Other core positions in $AAPL, $NASDAQ:AAL (American Airlines), $SWKS, $MS, $CELG and Ionis pharma were fairly flat.

Main lesson learnt from 2015 – STICK to your stops – downward moves can be savage – Analysts forecast can severely LAG the market on the downside as well as the upside, so do not fight the market, exit at your stop, re-evaluate and come back in lower down if you still like the stock.

Happy 2016 from the 2CentView team.

$NFLX – surges to new record – should you buy it here? the TAM will tell…

As Netflix surges to new record high, those of us not involved – including 2CentView – ask how and why is this stock just going higher?

Many market participants (and the 2CentView fair value model) base their valuation model on a discounted cashflow approach – and they stay out of the stock because this model valuation is always well below the current stock price. 2CentView FV Model for $NFLX = 365 vs 613.

Other (and perhaps smarter) investors look at TAM – the total addressable market and how much NetFlix can take of the TAM.
You can try and search the TAM on the internet – or make your own calculation/assumption – I think it is reasonable to assume that all 1.6 billion facebook users are potential users of NetFlix!
So TAM = 1.6bn Subscribers x Annual Subscription of $100 = $160bn dollars. NetFlx currently has 60 million subscribers.

How much of this TAM can NetFlix keep long term?
Such a large potential TAM will not go unnoticed by competitors – there is Amazon Prime Instant Video, HBO also entering the market – – we could see half a dozen competitors enter the space – but many of these will subscribe to more than one service – I subscribe to NetFlix and Amazon Prime!

So assume NetFlix can keep 20% of the TAM (around 320m subscribers from the current 60m) – thats $32bn – $26bn more than the current 2016 revenue projection – much of which will go straight to the bottom line assuming they can scale the business…Even if they spend $5bn on additional content and better technology – their costs should not go up massively to reach this TAM as it is just about getting content to more user e.g. CHINA! Hence why stock rallied 5%.

So NetFlix could see bottom line earnings of around $10bn by 2018 = applying a low 10x multiple to this you get $100bn market cap! so the TAM approach sees a very different valuation to the normal discounted earnings approach.

When Carl Ichan sold half his NetFLix stake at 320 – his son told him it was a big mistake – his son clearly had the right insight to the potential of NetFlix – the TAM, the technology, the strong management team lead by Reed Hastings..

Is it too late to buy? the TAM Approach says NO – NetFLix market cap could be $100bn by 2018 – the discounted cashflow approach says YES – in fact you should short it -as many have done!

2CentView is that – look at great companies, which disrupt and change consumer behaviour differently to traditional valuation methods. If you decide to buy, do the valuation using a TAM approach, believe in the managements team ability to execute and hold long term if they are executing the strategy – which does not mean selling after one bad quarter.

$NFLX Down 25% post results in a volatile market..

As the market continues a hugely volatile ride, stick to your stops and move part of your portfolio back to cash.

Stocks are long term investments, but managing volatile markets is tough.
You can do nothing and hope for a pull back – but what if this was 2008 where the market dropped more than 50%?

2CentView strategy is build low cost positions by taking profits (Look at $NFLX today) so you do not have to capitulate core positions for some time – but do sell new trading positions when they hit the stop.
Wait for the market to stabilize and look at it as an opportunity to either get in the same trading position lower down or another positions which can offer better risk/rewards.

2CentView stops hit in $AKS and $GM and opened trading in position in $GOOG (FV=590) ahead of results.

4 things all working together have really hit the market – EBOLA scare, potential recession in Germany with Russia situation not improving, war with ISIL in IRAQ And Syria and China growth concerns.
However, lower oil prices should be good – it may imply deflation which is good for Bonds – but also means consumers have more to spend spurring growth – it is almost like a tax cut!
So when EBOLA is under control and Germany decides to focus less on balancing its budget but add stimulus the market will start to turn again – not sure when this will be – but will be within the next few months.

Tweet 2Centview if you need a FV for any stock you like.