저자: Kevin · 외국인
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넷플릭스 실적은 구독자 감소폭이 시장 예상보다 작아 주가가 반등했으나, 매출성장 둔화·환율 역풍·APAC/LATAM 저ARPU 확대 등으로 펀더멘털 매력은 낮다고 평가. PER 약 20배 대비 이익성장 낮아 PEG 높음. 광고요금제(CPM)는 수익성 기여가 미미하고 구독모델 대비 불리하다고 봄. 강달러 완화 시 환율 순풍 가능성 언급. 트레이드데스크는 넷플릭스 광고 파트너 탈락으로 부정적 영향 언급.
다듬은 글
Hey everyone, me Kevin here. Boy oh boy, Netflix has been the canary in the coal mine for markets. When we had the Q4 results and the Q1 results in the first quarter of the year and the second quarter of the year, boy oh boy, Netflix absolutely crushed the stock market because we got not only big old minus 20% moves in the price of Netflix and a plummeting of the stock to the point where it was in the $400, then it was in the $300, and Bill Ackman's like, "I'm going all in on Netflix." And Netflix has a temporary rally, then it proceeds to crash all the way under $200.
And boy oh boy, Netflix has also therefore then pushed the stock market lower and lower and lower. Netflix has been this company that everybody likes looking forward to, mostly to see, "Okay, how bad is this earning season going to be?" Because if Netflix does terribly, oh boy, everyone else is probably going to suck as well.
And we've got some good news from the canary in the coal mine. Instead of sucking to the tune of losing 2 million subscribers, they only lost 970,000 subscribers, which is still absolutely horrible, but it's half as bad as what the market expected. And so while the market was also expecting 17% implied volatility, suggesting the stock could have gone up or down 17%, showing you how uncertain the market was about these earnings, the stock ended up going up 8% in after hours.
Which is actually phenomenal. And this is the kind of canary in the coal mine we actually want to see, a happy canary in the coal mine. Now, earnings per share going forward, unfortunately, the going forward estimate wasn't as good as what we were hoping for Q3 earnings per share. We ended up getting a guide of $2.14 versus $2.71.
But this half as bad news on that earnings or that subscriber number was really cheered by markets. Now, is this a company that tells us anything else about the consumer? Is this company a trade for the stock market? Is it a currency play? Or is this a fundamentally good company that should be invested in?
All of those questions that I just stated are what you're going to learn in this video. So, let's go right into the depths of this video. The first thing that you need to know is this is earnings or the press release from Netflix for their earnings release. And we need to know that Wall Street has an expectation that Netflix is going to provide for an EPS of $10.88 for this company.
$10.88 for this company, which is currently trading for roughly $220, means that the company is trading for a price-to-earnings multiple, a PE ratio, of about 20.22. Now, a general rule of thumb that I try to follow is that you want to see a company growing their earnings at roughly the same number as the price-to-earnings multiple.
Now, I don't want to lose you here, but let's just put it this way, okay? Right now, Netflix is not really growing their earnings. They're not expected to grow their earnings any more than this year, 1.2% in 2022, and 8.2% in 2023, and finally they'll get to 18.3% in 2024. At least that's what Wall Street is expecting.
Maybe they'll exceed expectations. Let me show you how this works, and then we'll move on to less nuanced numbers here, because I know numbers can get overwhelming. But just to give you a very simple understanding, let's take 2023 for example here. And let's say that in 2023 they end end growing their earnings at 10%.
Well, 10% into this price to earnings multiple of 20 means you have about a ratio of two, right? You're paying twice as much for a price to earnings multiple as the rate at which the company is growing. A PEG ratio of two is a tool for us to try to compare to other companies. Personally, I really like that right now companies like Tesla and Google are sitting between the 1.3 to 1.5 ratio in terms of a PEG, which in my opinion provides a better value than what we could see for Netflix's ability to grow their earnings.
But, is this potentially just short-term? Is there maybe a reason why Netflix is having trouble growing their earnings? Well, the answer to that is yes, and I'm about to fully explain that to you because there are some things here that quite frankly are beyond Netflix's control, but that lack of control could end up being a very, very nice positive tailwind uh helping out Netflix going forward.
So, we'll talk about that. So, jumping on over here to their uh press release, . Uh most important is there is a risk in this company of what I call tech memory. So, tech memory means that when you have a tech company, you're used to a company growing at like 30% every single year, and that lets people pay really high valuations for these companies.
Uh and unfortunately, tech memory is something that you do not want to have, and so therefore I think that's a risk at Netflix is that people think, "Oh, this is such a high-growth company." It really isn't anymore. They're not really growing that incredibly anymore. Uh they're growing really under 10%.
In fact, you could see that here. Year over year, they're growing revenues about 9.8% in Q1. Year over year, that has slowed to 8.6% in Q2, and they're expecting that to slow even further to just 4.7% revenue growth in Q3 year-over-year. That's not great because now you're paying a lot of money for a company that isn't really able to grow revenues as well as it should.
And there are quite a few reasons for this. But first, I want to start with this as a potential reason here. In the Asia-Pacific region, revenue grew 23% year-over-year excluding foreign exchange. We'll talk about foreign exchange in a bit. That's actually great. When we think about that for a moment, it's like, "Wait a minute.
Why is their headline forecast that they're going to be growing less than 5% but they're growing 23% in the APAC region?" Well, what this means is that the US and Canadian markets and maybe even the Euro markets are growing substantially slower than the APAC regions. But, the Asia-Pacific regions are really important to pay attention to because the average revenue per customer is very different.
I want you to think for a moment, how much do you think the average revenue per customer is in the United States, Canada, uh and Europe? And then, how much do you think the average revenue is uh now compared to the Asia-Pacific region? Okay? Well, think about those numbers. Now, I'm going to give you the first one.
In the United States and Canada, we're at $15.95 uh in average revenue per membership. Okay? Average revenue per membership, $15.95 per month. I'm going to skip Euro for a moment. How much do you think the Asia-Pacific region is? Is it 10% less? 20% less? 30% less? Well, folks, it comes in at just $8.83.
So, it's almost half as valuable. So, yeah, you're growing substantially more here, but that's only half as valuable as the growth that you have in the United States and Canada. The same is true, hate to say it, for Latin America, which Latin America is where Netflix is now testing their whole like, "Hey, pay us a little bit extra and we'll allow you to share your password." plan, which personally I think is like, "Dude, if I was in Latin America and I wasn't making a lot of money, I would not even pay an extra dollar per month to share my password.
I would just share my password." Now, maybe they have like special tools for being able to limit password sharing, but that's very difficult to do. In fact, to limit password sharing, the Bloomberg terminal, for example, gives me this biometric authenticator that I have to carry around, and I even put an Apple AirTag on it because it's so annoying when I don't have it and I lose it.
So, and that's also why I've tethered it to this backpack here, is so so that way it's like really obvious where it is cuz I need it. So, it's very difficult, it's almost impossible for me to share my Bloomberg login password. But, Netflix, come on, they're not going to put people through that crap.
Anyway, and this is also not profitable enough to send people biometric authenticators, right? So, I don't I don't know how they're going to pull that off, but if you look at Latin America, unfortunately, they're not faring much differently. Their average revenue per user on a monthly basis is $8.67.
So, even though you are seeing growth in the Asia Pacific regions and Latin America, you're not actually growing into a more profitable customer. And if you're losing, and we don't have a we don't have the count of this, Netflix doesn't give us the count of this, but if we're losing more of these customers and gaining more of these, that's not great.
Because you could lose one customer here, and you could gain two customers here, and this would basically be a wash. Yet, on the headline, it would be like, "Oh, yay, Netflix is growing." Uh, not necessarily, right? So, that's really important to remember is that Netflix is now, I hate to say it, but there's a chance that COVID has somewhat saturated Netflix's growth in the profitable regions.
And so, now you're kind of expanding into the unprofit- Well, I shouldn't say unprofitable, but the the less uh profitable regions, right? Because you're still producing the same content to maintain your US users. Now, you're just let's say dubbing it in in uh you know, Indian languages or or whatever.
So, uh Netflix did increase their prices, by the way, uh in March, on March 30th, they increased their prices uh a buck to a couple bucks, depending on which plan you were in. And Netflix suggests that that has actually led to churn remaining slightly elevated. They do argue in their earnings call that is very typical for churn to be elevated after uh you raise prices.
Now, something else that I noticed here is that their uh Asia Pacific average revenue uh per user in in the APAC region was minus 2%. Uh and they say that actually has to do because of India. So, uh whereas Korea and Australia helped actually boost uh their average revenue per user in the APAC region.
Which the APAC region, again, is already 50% of the United States, right? But what's wild here, folks, is that India is where they're seeing a massive amount of user growth, but they're having to sell the service at a cheaper price than even in Korea and Australia. And to some extent, this makes sense just considering, you know, average average per household income, per capita income, uh or household or per capita income.
Those are two different things, right? Per capita is per head, uh and uh there could be multiple heads in a house, right? Anyway. So, okay. Uh now, we've got to touch on foreign exchange. So, we know we're growing, but we're growing to uh not such a desirable uh or or I shouldn't say desirability, but to a lower income demographic.
Now, we've got to shift to another big thing that's really hurting Netflix, but could end up being really good for Netflix and could end up creating a big opportunity for you as an investor. I do want to mention though these sorts of fundamental analyses that we're doing right now, we try to do almost on a daily basi linked down below.
We take videos or or earnings reports from maybe a couple weeks ago or recently that I don't cover on the main channel, and we try to get as much of the recent information that people aren't talking about out in a course member live stream setting where we're going through these releases together. We're doing fundamental analysis together.
And that way too, rather than just listening to me with sort of conclusions, you can actually see how to do it yourself. And that's the whole purpose of the programs that I have on building your wealth linked down below is teaching you how to make money in real estate and investing. So, join those. You get lifetime access to the programs.
access to the uh live streams on building your wealth, and we constantly add new content. So, check those out linked down below. There's a coupon code that does expire on July 28th, which uh is the same day we get a GDP read, which that'll be quite remarkable. Okay, so what do we want to take a peek at here regarding some of the issues that Netflix is running into.
Keep in mind, we're also going to be talking about Trade Desk towards the end of the video. Trade Desk is a company that I'm a big fan of, but we've got some bad news for Trade Desk that came out from Netflix. Uh at least it's offset by yes, your ability to use that coupon code for 50% off up until July 28th.
Okay, enough of that now. Let's focus on what we have on screen here. So, what we have here is fascinating. So, first they mentioned that we have high exposure to this unprecedented appreciation in the US dollar because 60% of their revenue comes from outside of the United States. And so, even though they're forecasting only 5% revenue growth, we saw that earlier when I made the sad face, that actually would be 12% revenue growth if they had a neutral currency.
So, let me briefly explain that without trying to get too complicated. Basically, if all of the growth that happened around the world was happening in US dollars, Netflix would actually be growing revenue at about 12%. But unfortunately, because they're taking money in, let's say, uh rupees, right? They're taking Indian rupees in, and so they take the rupees in, and then they have to at some point, at the end of the day or week or month or whatever, convert it to dollars, those dollars are coming over less valuable than what they're actually charging for in dollars set originally, because this price is set that's somewhat compared to dollars originally, but by the time it actually comes over, Netflix sees less dollars.
And so, uh as long as the dollar keeps going up, Netflix is probably going to continue to have pain. But, there's also a chance of an opposite approach happening here. Now, we just did a big uh lecture yesterday on what I call the great dollar short, and this is potentially shorting the dollar because there's a chance that the dollar might actually fall once we start seeing that inflation is more transitory.
But, that's a whole different topic for a different day. Maybe I'll make a video on that, maybe not, but it's in the course member livestream from yesterday in case you want to see it. And so, what's wild here is that if the US dollar starts falling, so the dollar goes down, then instead of having headwinds for Netflix, you're actually going to see tailwinds for Netflix as a falling dollar actually makes them more competitive because again, 60%, folks, that's more than half of their revenue comes from outside the United States.
That's going to be really critical going forward, but then you have to ask yourself, is Netflix still worth it if you're paying 20 times earnings for a company that even on a currency neutral basis is only growing revenues, not even bottom line, by 12%? And that's obviously in this ideal scenario of being able to to have, you know, currency neutrality, which we just don't have.
Okay, so risk number one with Netflix is let's just do a quick recap, okay? Risk number one is that you have what I call the tech memory, right? In terms of like the broader market, hey, like broadly Netflix is great. It's a great canary in the coal mine. That says broad and smiley face. Sorry, it's cut off.
But anyway, in terms of actual like Netflix itself, you have tech you have headwinds of the tech memory, which is not great. So, one, tech memory, that's people paying tech valuations for a company that's not growing as fast anymore. Unfortunately, you have a dollar issue with a strong dollar, right?
These are your downsides uh for Netflix. So, down N F L X because it's not a tech company. I mean, it like to some degree it still is. It has technology, obviously, but it's not growing like an emerging tech company, right? Strong dollar hurts them. The next issue that you have is ads. Uh and then obviously uh the one that we also mentioned, which I didn't include on this list, is the fact that you're having more growth more growth uh at lower average revenue uh per membership, right?
So, these are four big dangers that you have, and we've talked about most of these, but we haven't yet talked about this one here. And that, folks, is a biggie. Because, see, Netflix now has partnered with Microsoft, sadly not Trade Desk, even though the CFO of Netflix went over to Trade Desk. Trade Desk was not able to lure in Netflix, which is unfortunate.
And so, good news for Microsoft, though. Microsoft got the partnership with Netflix. It is an exclusive partnership. In fact, I can show you where that exclusivity is in the earnings call. They are still partnering with Amazon. You can see that here in the earnings call. They're still partnering with Amazon for AWS.
So, that's actually good to know for for Amazon. But, here you go. Will ads be sold exclusively on Microsoft? The answer to that is yes. And they chose Microsoft because of their technical capacity for go-to-market opportunities, privacy, and there was briefly a mention of gaming, but this was not developed on by any of the um by by any of the executives.
It was more that was a a question that was asked of like, "Hey, like, what other opportunities could we see in the future?" Here it is. Can can the partnership with Microsoft involve cloud and gaming and perhaps other things over time? And they mentioned that yes, but we didn't get any other kind of color on that.
So, I thought that was like an interesting potential direction with this partnership with Microsoft. But but for me, that's what I just call like noise. It's the icing on the cake. I can't value that. I'm just going to like, "Okay, cool, maybe, whatever." But, what we have to talk about is ads. Ads are everything.
Uh when a company that has no ads when you pay for their membership is deciding to do the following. Our lower-priced advertising-supported offering will complement our existing plans, which will remain ad-free. Okay. So, what they're trying to do is make money from people who are price sensitive. So, this is what every company wants to do.
Every company wants to be able to sell you the product for the absolute most of the money that you're willing to pay. So, for example, if you are willing to pay $10 for something, but the price is $8, the company lost $2 because they didn't capture that $8. If somebody else is only willing to pay $6 for something, then the company loses that potential $6 if it's profitable, obviously, to sell it at $6.
Best case scenario, the company is able to say, "Let's sell the $10 product to the person willing to pay 10. Let's sell the $6 product to the person willing to pay six." That way they're getting most customers, right? And so, that's really what Netflix is trying to do here. They're trying to say, "Hey, look.
If you want to pay 15 bucks a month and have a, you know, premium quality and no ads, great. You can do that. But, how about we now introduce a new feature, which we don't know the pricing of this yet, so I'm speculating this. We're going to introduce something at, let's say, four $4.99, and it'll be supported by ads." Okay, great.
Maybe you'll be able to get a larger base here, right? But, what I question is how much value are you actually going to have in what's known as in the advertising world, CPM, clicks per mill, right? This is how ads are charged. And the way you can kind of think about this is very simply. Think about YouTube, okay?
YouTube pays about, let's just say on average, somewhere around $10 as a CPM. For some content, like maybe finance, it could be 18, it could be 20, it could be 25 dollars. But, for generic entertainment, it's usually between 5 and 15. So, let's just go with $10 as a CPM. If Netflix now gets 1 million users, let's get rid of the dollar sign there.
Let's say they get a million users and each of these users watches 100 ads. Well, that equals 100 million ads, right? Well, 100 million ads divided by 1,000, which is how we get to this CPM, right? So, now we have to divide 100 million by 1,000, which if we take three zeros off of that would bring us down to not 10 million, not 1 million, but 100,000.
100,000. 100,000. There we go. Paid mill slots, basically, times the ad rate of 10 means Netflix would stand to see about $1 million of revenue. So, if you had 1 million users watching 100 ads, which is three ads a day, maybe Netflix would make a million dollars. Let's now assume that all of that is 100% profit.
Let's compare to their net income. Ooh, their net income in this quarter was $1.4 billion and it was 960 or the forecast is $961 million. So, a big decline there in net income forecast. But, wait a minute. Even if a million new users watch 100 ads, so three ads a day, that's only an extra one mill, which is like less than 1/10 of 1% of their net income, assuming this is all profit after the Microsoft split.
And when I say Microsoft split, I don't mean stock split. I mean like Microsoft's going to take some of the money as a commission for placing the ads, right? Okay. So, in my opinion, that's really low. And there are some serious risk factors about Netflix going to an ad-supported model. The first risk factor is that what happens if people like me pay 15 bucks a month for Netflix because I am, but then I'm like, "Dude, you know what?
I'm watching so little Netflix. Let me just go down to the $4.99 option. And then when I watch Netflix, I'll just watch the three or four ads or whatever, the the random time I watch Netflix." See, the beautiful thing about this model is they make 15 bucks whether I'm watching or not. Here, yeah, they make $4.99 whether I'm watching or not, but that CPM they only get, presumably, if I'm watching.
And if I ain't watching, and they're charging you $4.99 or $1.99, or worse, they're giving it to you for free, then the ad play for CPM ain't working unless people are constantly watching. So, I am personally not enthusiastic about people going to this Netflix going to the CPM model because it could lead to downgrading by by existing higher-revenue users, and it could also mean that even if people watch a lot initially, when they taper off and watch less, I don't see this actually moving the needle on their net income.
I think it's a terrible idea. Uh and I don't know how they're going to continue to support their crazy expenses, which they have, on uh on on production, which their expenses for production are going up. They mentioned a 10 to 15% impact because of COVID, but look at this. They grew total revenues uh in the second quarter to the first quarter at 1.3%, but their cost of revenues went up 9.4%.
Their technology uh division also went up almost 10%. Their G&A stayed uh roughly stable at about a 3% increase. And so, we're seeing a company here that is spending more money on on one hand, so you're you're spending more money to produce content, but on the other hand, you're also potentially selling this product to a less valuable user base, the Asia Pacific use region, Latin America.
And you're also going to this ad-supported model, which in my opinion has very little chance of being anywhere near as profitable as a monthly subscription, because the monthly subscription doesn't rely on people actually watching. Remember, folks, the gym membership model. What does the gym rely on?
The gym relies on you not going to the gym. It relies on you not using the service. It just wants you to pay the 30 bucks a month and not go, because then the gym isn't overpopulated, that new guests are like "Oh, these machines are available." And you pay a sticky subscription and you spend your money.
Now, look, balance sheet-wise, we're decent here. We've got about $7.8 billion in current assets minus about 6.3 in current liabilities, not considering deferred revenue. That gives them about 1.5 billion of free cash. If they burn about 300 per quarter in millions, that's that's about five quarters of cash.
Eventually, if they keep burning money the way they do on their cash flow statement here, eventually they are going to need to raise money. But because so far they've been cash flow negative. Now, I do want to briefly just touch on the Trade Desk partnership. So, obviously, they partnered with Microsoft and not Trade Desk.
I do think this is bad news for Trade Desk because you know, and look, Trade Desk and Netflix, I want to be clear about this, both of them could end up doing very, very well, because we might just be at a Nasdaq stock market bottom. We could be right there. And all of these companies are going to do better.
So, by no means do I want to like make this video and like poop on Netflix and say, "Oh, it's not going to make you money." It's just is it a fundamental play or is it a trade, right? Timing is a trade. Fundamentals is like, do I really have high conviction in this company? Me, personally, I don't. It's It's not a company I would invest in.
What about Trade Desk? Well, this miss on the Netflix deal is not great because there was a lot of hopeium built into the stock price on that. And And I know that's not fundamental, that's a trade, and that trade did not work in that sense. Uh but what does it mean going forward? Well, it's probably going to be harder to get that Disney partnership now.
They already have a partnership with Disney, but they don't have a Disney Plus partnership. Although, I think Disney Plus is going to be a little smart, and they're going to watch to see what happens with Netflix. I don't think the CPM model's going to work. And Disney would be very smart to go, "Yeah, no.
We ain't doing the cost per mill, you know, cost per ad model. That's crazy." Anyway, my thoughts. . Goodbye.
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