Technology
Emerging competitive pressures from Amazon's in-house DSP create a very real and underappreciated bear case. Furthermore, TTD has likely been overearning the last several years as the majority of CTV spending occurred in the open internet, yet much of these ad dollars are now shifting back toward the walled gardens (AMZN / Netflix). TTD’s mature client base is no longer growing, rendering it increasingly reliant on customer spend growth. Amid lofty expectations and an elevated ~45x FY25 EBITDA multiple (>2x PEG vs. ~0.9x average for AdTech peers), the share price could fall as much as ~50% over the next 12-24 months.
Edition: 203
- 24 January, 2025
Stock market rotation is gradually turning defensive
While Utilities outperformance is being attributed to greater energy demands of AI and EVs, many “boring” electric utilities without obvious AI potential are up DD % over the last few months (AES, Dominion Energy, PSEG). Furthermore, Consumer Staples has an early outperform forecast in Michael Belkin's proprietary times series analysis model - another risk-off signal. The AI and Tech obsession obscures a bigger trend: many Tech stocks are declining. The CLOU cloud software ETF is down -15% since early Feb. Former leading new-era disruptors are top Sell recommendations (Uber, Meta, Netflix). Even Nvidia remains a Sell and its biggest risk is something nobody is talking about: its chips are made in Taiwan.
Edition: 187
- 31 May, 2024
Communications
NFLX added 13.1m subscribers in 4Q23 (vs. 8.8m guidance) and management expects stronger 1Q24 net adds than they saw in 1Q23. Revenue growth accelerated to 13% in Q4 and should continue to accelerate in 2024 (Craig Huber estimates up 14.9% vs. 6.9% in 2023) and 2025 (+16.1%), driven by price increases, scaling the advertising business and continued monetisation of previously shared accounts. Operating profit margins will continue to expand (Craig forecasts 24.7% in 2024 and 29.4% in 2025 vs. 20.6% in 2023). He raises his 12-month TP to $610 based on 20.0x 2025(E) EBITDA or 24.4x EPS.
Edition: 178
- 26 January, 2024
Communications
Post Q2 results, the stock trades at 20.9x/16.2x Craig Huber's 2024/25(E) EBITDA and 26.6x/19.8x EPS, which appears attractive given his expectation that revenue growth should accelerate in Q3 (estimates +6.8% y/y) and Q4 (+10.0%) and remain at 10%+ in 2025/26. Ad-supported tier and password sharing initiatives should start to materially contribute to higher overall average revenue per member in 2024 and long-term secular trends favour NFLX. He estimates that 35-40% of its content is developed outside the US which is a huge competitive advantage vs. peers on several fronts, especially with the ongoing Hollywood strikes. Craig increases his 12-month TP to $500.
Edition: 165
- 21 July, 2023
Communications
Andrew Hollingworth has previously been keen to highlight the many aspects of NFLX's long term Sustainable Competitive Advantages while also being attracted to the short-term price discovery that was due to occur because of password-sharing changes. Following the recent news that each user not from the main household will now have to pay $7.99 in the US and £4.99 in the UK, Andrew’s prior calculations are revealing - he suggested that just a single add on charge of $4 p/m income for each of the 100m password sharing households would add $4.8bn in revenue; EBIT margin would jump from 20% to 30% and RoNTA from 14% to 25% - it's operational gearing on steroids!
Edition: 162
- 09 June, 2023
Communications
NFLX now describes video games as one of its three core media offerings alongside movies and TV series and has ambitions to be a games market leader. That is a pretty bold statement from the streaming giant that has changed film and TV forever but is still only a minnow in games. Does it have the potential to succeed, or will it follow so many other major media / tech companies whose hubris and strategic misjudgements led them into expensive video game car crashes? GIC analysts, veterans of advising big media companies about games strategy over 27 years, take a deep dive into NFLX’s approach, challenges and prospects.
Edition: 154
- 17 February, 2023
Short model portfolio outperforms by 31%
26 out of New Constructs’ 32 ideas outperformed in 1H22 with an average return of -50% compared to a 19% decline for the S&P 500. Underscoring just how important reliable fundamental research is in turbulent markets, their model portfolio has beaten the S&P by an even wider margin (48%) since the start of 2021. Top performers have been Coinbase, Carvana, Peloton, Snap, Beyond Meat and Lyft. As we enter 2H22 high conviction shorts include Netflix, Uber, Shopify and Robinhood.
Edition: 140
- 22 July, 2022
Communications
Subscriber losses to persist - sees the stock below $100/share over the next 6-12 months. Andrew Freedman has long argued that NFLX’s addressable market for subscribers was smaller than management and most investors were modelling, and that pricing power was challenged by competition. This would trigger a reverse flywheel effect that would expose the inefficiency of its content strategy and the fragility of the business. With the stock down ~70%, Andrew goes back to the drawing board to determine what comes next for the streaming giant (incl. strategic options and what a push into advertising could look like).
Edition: 138
- 24 June, 2022
Communications
High conviction mis-valuation opportunity only emphasised by Warren Buffet's increased investment in Paramount Global - Robert Sassoon argues Netflix’s woes are company specific (reliance on streaming subscriptions has simply laid bare its vulnerabilities). By contrast, WBD, PARA and Disney have diversified revenue models, backed up with high quality content libraries. WBD’s debt burden is also less onerous than it appears (very attractive fixed rate terms and interest payments will be dwarfed by FCF generation prior to the first repayment dates in 2024). Attributing a PARA-like value multiple to WBD's consensus 2023 EBITDA offers 80%+ upside.
Edition: 136
- 27 May, 2022
Communications
Still overvalued by at least $114bn - the firm is a bait fish in a tank filled with sharks. Considering the subscriber miss in 4Q21 and weak guidance the flaws in NFLX’s business model are undeniable. New Constructs uses their reverse DCF model to show the implied value of NFLX under a scenario with a realistic assessment of the mounting competitive pressures it faces. There’s 66% downside if margins fall to the 5-yr average (9.2%) and revenue grows by 11% compounded annually through 2027 (and this assumes YoY change in invested capital is only 10% of revenue vs. an average of 24% p.a. since 2013).
Edition: 128
- 04 February, 2022
Small Brands Making Some Big Noise
Consumer Discretionary
The Retail Tracker offers an insightful perspective on retail, fashion and consumer trends. In their latest weekly Insights & Intelligence report they highlight the following exciting brands:
Rowing Blazers: Every decade or so a new brand appears on the scene, small and nichey at first, to take on the “preppy” space and modernise it.
Daniel Fletcher: Launched into the stratosphere by Netflix and Next in Fashion, Daniel Fletcher is the one to watch in menswear.
Entireworld: The merchandise is cool, wearable for everyday and very well priced.
Pehr: All organic, with a small environmental footprint but importantly it has the look and feel (and IG followers) to speak to new mothers.
Edition: 113
- 25 June, 2021
Discovery (DISCK)
Communications
Robert Sassoon explains why market apathy towards Discovery’s merger with AT&T's WarnerMedia is a gift to value investors and believes the $43bn deal will give Warner Bros. Discovery a real shot at competing more effectively in the DTC streaming market. Robert sees 30%+ upside over the next 12-15 months (based on a very conservative 10x 2023 EV/EBITDA), with the prospect of a greater than 100% return should investors become “a little more excited” about WBD's streaming service strategy as they have done with Netflix and Disney.
Edition: 112
- 11 June, 2021
Welcome to the subscription economy
We are living in a new world… one that is increasingly based on services instead of goods. One-time purchases are out of the window and long-term relationships are here to stay, the change driven by demographic drivers and a slowdown in new household formation by millennials. From Netflix to Peloton, subscription services are here to stay.
Edition: 110
- 14 May, 2021