1 00:00:00,100 --> 00:00:03,000 We have some breaking news Netflix, just reported their 2 00:00:03,000 --> 00:00:06,700 earnings report, just a few minutes ago, and this is for Q4 3 00:00:06,700 --> 00:00:08,900 of last year. So we get to see what's happened 4 00:00:08,900 --> 00:00:10,300 now. Before we even dive into the 5 00:00:10,300 --> 00:00:12,500 shareholder letter and go through the earnings report, I 6 00:00:12,508 --> 00:00:14,100 just want to go over some of the headline news. 7 00:00:14,100 --> 00:00:17,600 Here we have the big news, this is what every investor pays 8 00:00:17,600 --> 00:00:20,900 attention to the quarter by quarter subscriber gain, or 9 00:00:20,900 --> 00:00:24,700 subscriber loss for Netflix. In this case, they forecasted 10 00:00:24,700 --> 00:00:28,800 gaining 4.5 million subscribers and they ended the quarter with 11 00:00:28,800 --> 00:00:32,400 a net addition of seven point six, six million subscribers so 12 00:00:32,400 --> 00:00:34,300 they beat their forecasts for subscribers. 13 00:00:34,500 --> 00:00:36,300 That's good news. I like it when the business is 14 00:00:36,300 --> 00:00:39,900 growing, but I think investors pay a lot of attention to this 15 00:00:39,900 --> 00:00:41,700 news. In particular, if we look at the 16 00:00:41,700 --> 00:00:44,800 reaction from the stock market, it's always volatile. 17 00:00:44,800 --> 00:00:47,800 Netflix is one of the most high beta volatile companies. 18 00:00:48,100 --> 00:00:50,800 Even though, I think the business fundamentally strong, 19 00:00:51,000 --> 00:00:52,500 this stock is all over the place. 20 00:00:52,700 --> 00:00:55,400 So this is one that I discourage others from investing in because 21 00:00:55,400 --> 00:00:58,300 I don't think most investors can tolerate this level of 22 00:00:58,308 --> 00:01:02,000 volatility. Now, the Like right now is up 5% 23 00:01:02,000 --> 00:01:04,200 after hours. It went as high as eight percent 24 00:01:04,200 --> 00:01:05,600 and then it moderated a little bit. 25 00:01:06,100 --> 00:01:09,100 But this is what everybody pays attention to after Netflix is 26 00:01:09,100 --> 00:01:11,400 earnings. And I actually don't think that 27 00:01:11,400 --> 00:01:13,900 investors should be paying attention to this so much of 28 00:01:13,900 --> 00:01:15,700 this stock. Price movement is driven by a 29 00:01:15,708 --> 00:01:19,300 short term Traders options, different investment vehicles 30 00:01:19,300 --> 00:01:21,700 that push the price up and down. And I don't think it's 31 00:01:21,700 --> 00:01:24,000 reflective of how the companies actually doing. 32 00:01:24,000 --> 00:01:26,500 So rather than focusing on the short-term price fluctuations. 33 00:01:26,500 --> 00:01:29,300 I want to dive into the actual letter and see how this business 34 00:01:29,300 --> 00:01:31,600 is doing. Now, as you know, I'm invested 35 00:01:31,600 --> 00:01:33,300 in this business. So you're looking at this from 36 00:01:33,300 --> 00:01:35,100 someone that has a stake in the company. 37 00:01:35,300 --> 00:01:36,700 This is one of my larger Holdings. 38 00:01:37,000 --> 00:01:40,400 I've, I've kept the faith with Netflix, I kept invested in it. 39 00:01:40,400 --> 00:01:43,500 When it fell 70%, I kept invested in it when Bill Ackman 40 00:01:43,500 --> 00:01:46,400 sold out, I kept invested in it when people were trashing me in 41 00:01:46,400 --> 00:01:48,300 the comments for staying invested in this company, 42 00:01:48,600 --> 00:01:51,100 because every time I look at it, I liked the company. 43 00:01:51,100 --> 00:01:54,400 So I come from that perspective, I like the stock, I like the 44 00:01:54,408 --> 00:01:56,600 company I'm staying invested in it now. 45 00:01:56,600 --> 00:01:59,800 Here we go Q for 2022, Revenue, operating profit. 46 00:02:00,000 --> 00:02:03,200 Membership growth, exceeded our forecast, we continue to lead 47 00:02:03,200 --> 00:02:06,700 the industry and streaming engagement revenue and profit 48 00:02:07,200 --> 00:02:09,300 that they can say confidently because they lead it. 49 00:02:09,300 --> 00:02:12,500 In all of these categories by a wide margin, every other 50 00:02:12,500 --> 00:02:17,800 streaming competitor, whether it's Disney Paramount, peacock, 51 00:02:18,300 --> 00:02:21,800 Warner Brothers, Discovery, all of them lose a lot of money with 52 00:02:21,800 --> 00:02:24,200 their direct-to-consumer part of their business. 53 00:02:24,200 --> 00:02:26,800 This streaming part of the business Netflix is in a very 54 00:02:26,800 --> 00:02:29,800 privileged position whether the only one that reach scale. 55 00:02:29,900 --> 00:02:33,200 They're actually profitable. They say rq-4, contents, late, 56 00:02:33,400 --> 00:02:35,700 outperform, even are high expectations. 57 00:02:36,100 --> 00:02:40,100 Wednesday was our third most popular series ever the hariya 58 00:02:40,100 --> 00:02:41,900 Meghan. Our second most popular 59 00:02:41,900 --> 00:02:46,400 documentary series troll was our most popular non English film 60 00:02:46,400 --> 00:02:49,500 and Glass Onion and I felt mystery our fourth most popular 61 00:02:49,500 --> 00:02:52,800 film. So we have over just the past 62 00:02:52,800 --> 00:02:56,200 year for of their most popular pieces of content in the history 63 00:02:56,200 --> 00:02:59,300 of the company. All came out last year and 64 00:02:59,300 --> 00:03:01,400 Wednesday. This was like a smash success. 65 00:03:01,800 --> 00:03:04,700 It's crazy how Netflix even without all the IP. 66 00:03:04,700 --> 00:03:07,600 You have companies like Disney that has all this incredible IP 67 00:03:07,600 --> 00:03:12,400 like Marvel, and Pixar, and lucasfilm Netflix doesn't have 68 00:03:12,400 --> 00:03:14,500 any of that. But somehow, they just, they 69 00:03:14,500 --> 00:03:17,000 just fabricate. These Smash Hits like Wednesday, 70 00:03:17,500 --> 00:03:20,700 troll, Harry and Meghan, right? They documentaries they come out 71 00:03:20,700 --> 00:03:23,600 with the different series. Sometimes they just start able 72 00:03:23,600 --> 00:03:25,300 to pull a success out of nowhere. 73 00:03:25,700 --> 00:03:28,000 They say we successfully launched our new lower price 74 00:03:28,000 --> 00:03:31,500 adter ad-supported. Plan in November and are pleased 75 00:03:31,500 --> 00:03:35,800 with the early results with much more still to do that strikes, 76 00:03:35,800 --> 00:03:38,400 me is some potential weakness there. 77 00:03:38,900 --> 00:03:42,000 They don't give much in it. I think if they had incredibly 78 00:03:42,000 --> 00:03:44,900 good statistics or measurements on it, they probably show it 79 00:03:44,900 --> 00:03:46,000 here. So I think there's probably a 80 00:03:46,000 --> 00:03:49,200 reason why there that doesn't strike me in building confidence 81 00:03:49,200 --> 00:03:53,000 saying that we're satisfied with it, but we still have more to do 82 00:03:53,600 --> 00:03:56,000 in my opinion. I read that as the ad tears. 83 00:03:56,000 --> 00:03:59,000 Not going strong, but who knows. We'll look at that later. 84 00:03:59,300 --> 00:04:01,000 They say we did. I've heard on the high end of 85 00:04:01,000 --> 00:04:04,100 our operating profit margin Target for the full year of 2022 86 00:04:04,200 --> 00:04:06,800 and we expect to increase our operating margin in 2023 verse 87 00:04:06,800 --> 00:04:09,200 20, 22. So they're operating margins are 88 00:04:09,200 --> 00:04:11,700 actually increasing over time. They're not going down. 89 00:04:11,900 --> 00:04:15,100 And this is the sign of a company that has operating 90 00:04:15,100 --> 00:04:19,300 leverage every additional dollar of Revenue that Netflix makes 91 00:04:19,500 --> 00:04:22,300 should actually increase their profit margin of the company. 92 00:04:22,300 --> 00:04:24,900 They're operating margins. So that's a company that has 93 00:04:24,900 --> 00:04:27,700 operating leverage if a company earns more and more Revenue but 94 00:04:27,700 --> 00:04:30,900 the margin stay the same. That's a Any that does not have 95 00:04:30,900 --> 00:04:33,200 operating leverage. And Netflix is a company that I 96 00:04:33,200 --> 00:04:35,700 personally think has an incredible amount of operating 97 00:04:35,700 --> 00:04:37,900 leverage. They say for 2022, we finish 98 00:04:37,900 --> 00:04:42,000 with 231 million, paid memberships, and generated 32 99 00:04:42,000 --> 00:04:46,200 billion of Revenue 5.6 billion, and operating income to billion 100 00:04:46,200 --> 00:04:49,400 of net cash from operating activities and 1.6 billion 101 00:04:49,400 --> 00:04:52,800 dollars of free cash flow. So this is a profitable company 102 00:04:52,800 --> 00:04:57,100 profitable in the full year of 2022 and even profitable, when 103 00:04:57,100 --> 00:05:00,100 you look at a free cash flow metric, 1.6 billion dollar And 104 00:05:00,100 --> 00:05:03,000 free cash flow. If we Zoom down to the cash flow 105 00:05:03,000 --> 00:05:05,500 statement, we can actually take out the stock base Compass 106 00:05:05,500 --> 00:05:10,500 stock-based comprar the entire year of 2020 to amounted to 575 107 00:05:10,500 --> 00:05:12,300 million dollars. So we look at this again and 108 00:05:12,300 --> 00:05:13,700 just do some quick a napkin math. 109 00:05:13,900 --> 00:05:16,300 They did 1.6 billion dollars in free cash flow. 110 00:05:16,500 --> 00:05:18,300 We can net out. The stock based compost is 111 00:05:18,300 --> 00:05:21,300 roughly half a billion dollars and the company may just over a 112 00:05:21,308 --> 00:05:24,400 billion dollars in free cash flow in 2022. 113 00:05:24,800 --> 00:05:27,600 That's the story of Netflix, a free cash flow, positive 114 00:05:27,600 --> 00:05:29,800 company, even factoring in paying their employees. 115 00:05:29,900 --> 00:05:34,000 Employees and my opinion is in 2023, will see their forecasts, 116 00:05:34,000 --> 00:05:36,100 but I think they're, I think their free cash flow is going to 117 00:05:36,100 --> 00:05:38,900 go up dramatically. We have some unfortunate news 118 00:05:38,900 --> 00:05:40,300 here. This is news that I don't like 119 00:05:40,300 --> 00:05:43,300 to see Ted strandos and Greg Peterson are. 120 00:05:43,300 --> 00:05:46,900 Now the co-ceos of Netflix with Reed Hastings as executive 121 00:05:46,900 --> 00:05:49,600 chairman. So he's stepping down. 122 00:05:49,600 --> 00:05:52,200 Reed Hastings is one of my favorite CEOs. 123 00:05:52,600 --> 00:05:55,800 I like the guy I display. I like his mind, the way that he 124 00:05:55,800 --> 00:05:57,400 thinks how simple he puts things. 125 00:05:58,000 --> 00:06:00,700 Obviously, he was an incredible. Of Netflix. 126 00:06:01,100 --> 00:06:04,000 So we're seeing in my opinion, the same thing where we saw Jeff 127 00:06:04,000 --> 00:06:08,200 Bezos go away to the executive chairman position, we're seeing 128 00:06:08,200 --> 00:06:09,900 Reed Hastings, do the same thing. 129 00:06:10,500 --> 00:06:12,900 But when I look at this it's only a matter of time until this 130 00:06:12,900 --> 00:06:14,500 happens. He's been running the company 131 00:06:14,500 --> 00:06:18,100 successfully for a long period of time and I think that this 132 00:06:18,100 --> 00:06:21,300 shows that Netflix really thought about a succession plan, 133 00:06:21,600 --> 00:06:26,000 they had Ted surroundings, be co co for a number of years, and 134 00:06:26,000 --> 00:06:28,900 they're kind of handing, the Baton off to another co co. 135 00:06:29,200 --> 00:06:32,800 So this, Had I think a much better succession plan when you 136 00:06:32,808 --> 00:06:35,500 compare it to something like Disney where they just threw 137 00:06:35,500 --> 00:06:37,500 someone in the position that didn't know what they're doing. 138 00:06:37,500 --> 00:06:40,500 So, even though I'm sad to see Reed Hastings, step down, I do 139 00:06:40,500 --> 00:06:43,000 think their succession planning, was much better than some other 140 00:06:43,000 --> 00:06:46,700 companies so far overall I like the report there's some parts of 141 00:06:46,700 --> 00:06:49,700 it that I don't love the commentary on the ad Terror. 142 00:06:49,700 --> 00:06:53,000 I think was very weak. I think it was a red flag to not 143 00:06:53,000 --> 00:06:55,700 share the actual numbers and say we have a little bit more work 144 00:06:55,700 --> 00:06:57,700 to do on that but I'm not too concerned about that. 145 00:06:57,700 --> 00:06:59,700 I think that will be something that's iterative and slow. 146 00:06:59,900 --> 00:07:02,200 Growing. So the actor is not my primary 147 00:07:02,200 --> 00:07:05,700 focus overall, Netflix is a company that just added seven 148 00:07:05,700 --> 00:07:08,700 million paid subscribers. It's a lot of new members to the 149 00:07:08,700 --> 00:07:11,900 actual company and the fact that they're growing free cash flows 150 00:07:12,000 --> 00:07:15,000 while adding more subscribers I think is impressive. 151 00:07:15,000 --> 00:07:18,300 The company did 1.6 billion dollars in free cash flow even 152 00:07:18,300 --> 00:07:20,600 netting out. Stock-based compensation, 1.1 153 00:07:20,600 --> 00:07:24,000 billion and I think that will over double in 2023. 154 00:07:24,300 --> 00:07:26,500 Then they have commentary on their competition. 155 00:07:26,800 --> 00:07:29,700 This has been one of the big critics of net. 156 00:07:29,800 --> 00:07:32,500 Flicks, one of the big bear cases for the company. 157 00:07:32,700 --> 00:07:34,600 Competition is coming to get them. 158 00:07:34,900 --> 00:07:37,800 They say we continue to operate in highly competitive markets, 159 00:07:38,000 --> 00:07:41,300 as consumers, have a vast number of entertainment choices, beyond 160 00:07:41,300 --> 00:07:42,700 our direct streaming competitors. 161 00:07:42,700 --> 00:07:46,500 We also Vie for consumers, time against linear tv, YouTube 162 00:07:46,600 --> 00:07:50,600 short-form entertainment, like Tick-Tock and gaming to name 163 00:07:50,600 --> 00:07:53,600 just a few. The Silver Lining is that the 164 00:07:53,600 --> 00:07:57,000 market for entertainment is huge and Netflix is still very small. 165 00:07:57,000 --> 00:07:59,700 By comparison, I watch this old interview with Jeff Bezos. 166 00:07:59,900 --> 00:08:03,200 Back in 2010 and it was with Charlie Rose and Charlie kept 167 00:08:03,200 --> 00:08:05,700 asking him, how is Amazon going to beat Walmart? 168 00:08:05,700 --> 00:08:07,900 And how is Walmart going to beat Amazon? 169 00:08:08,100 --> 00:08:09,200 And they're going back and forth. 170 00:08:09,200 --> 00:08:11,900 Like there's going to be a winner and a loser and Jeff 171 00:08:11,900 --> 00:08:15,300 Bezos had to remind Charlie. That retail is a massive 172 00:08:15,300 --> 00:08:18,800 business and there's good odds that Walmart will succeed while 173 00:08:18,800 --> 00:08:21,100 Amazon succeeds. So he doesn't have to worry too 174 00:08:21,100 --> 00:08:24,300 much about Walmart. This is exactly the point that 175 00:08:24,300 --> 00:08:27,700 Netflix is making here. Entertainment is massive, 176 00:08:27,800 --> 00:08:32,200 YouTube Tick-Tock Warner Media Disney and Netflix can all 177 00:08:32,200 --> 00:08:34,100 succeed. And then they finally go on 178 00:08:34,100 --> 00:08:37,100 talking, once again, about the cash flow and capital structure 179 00:08:37,299 --> 00:08:39,000 noting that their free cash flow generative. 180 00:08:39,000 --> 00:08:41,000 Their company that has good operating margins. 181 00:08:41,200 --> 00:08:43,900 They're increasing their margins over time with every dollar of 182 00:08:43,900 --> 00:08:46,800 additional revenue. And they are a scalable company, 183 00:08:47,000 --> 00:08:48,800 something that I really like my investments. 184 00:08:49,000 --> 00:08:51,000 So, that's the earnings report if we want to look at the 185 00:08:51,000 --> 00:08:53,000 numbers visualize, we can use qual term here. 186 00:08:53,200 --> 00:08:56,800 We have the most recent numbers already added in Netflix, right 187 00:08:56,800 --> 00:08:58,700 there. Their revenue was seven point 188 00:08:58,700 --> 00:09:01,000 eight, five billion. So it's a little bit lower than 189 00:09:01,000 --> 00:09:03,700 the two prior quarters, but still, an increase 190 00:09:03,700 --> 00:09:05,900 year-over-year. And again a lot of this has to 191 00:09:05,900 --> 00:09:08,800 do with the FX currency. So they're expecting re 192 00:09:08,800 --> 00:09:12,000 acceleration of the revenue. Now, we look at the important 193 00:09:12,000 --> 00:09:15,900 number here, the actual cash flows of the company we have the 194 00:09:15,900 --> 00:09:18,600 latest quarter right here, three hundred and thirty, two point, 195 00:09:18,600 --> 00:09:21,300 two seven million. If we factor in stock base, 196 00:09:21,300 --> 00:09:24,000 komp2, it is exceeding the amount that they're paying even 197 00:09:24,000 --> 00:09:26,800 in stock-based compensation, this is becoming a truly free, 198 00:09:26,800 --> 00:09:29,300 cash flow positive company. When we look at it on a full 199 00:09:29,300 --> 00:09:32,200 year, Sis of 2022. This is what the final numbers 200 00:09:32,200 --> 00:09:34,700 look. Like the 1.6 billion again. 201 00:09:34,700 --> 00:09:36,600 The simple math. There we add in the half a 202 00:09:36,600 --> 00:09:38,700 billion dollars from stock-based compensation. 203 00:09:38,900 --> 00:09:42,200 They're still making over 1.1 billion and free cash flow, even 204 00:09:42,200 --> 00:09:44,900 excess of their pay. So I like it, I like the 205 00:09:44,900 --> 00:09:47,200 direction of the company and my opinion, the story hasn't 206 00:09:47,200 --> 00:09:49,900 changed the original reason that I invested in Netflix is because 207 00:09:49,900 --> 00:09:52,600 I've looked at history, I've seen these media companies like 208 00:09:52,600 --> 00:09:57,000 Disney and BC Paramount stay around for 100 years and 209 00:09:57,000 --> 00:09:59,100 generate excessive amounts of profit. 210 00:09:59,300 --> 00:10:02,400 I look at Netflix as a newer version of that type of media 211 00:10:02,400 --> 00:10:04,200 company. I think it will be around for 212 00:10:04,200 --> 00:10:05,800 100 years. I think it's going to grow its 213 00:10:05,800 --> 00:10:07,600 free cash flow. I think it's going to scale 214 00:10:07,600 --> 00:10:10,100 across planet Earth. Especially when more people get 215 00:10:10,100 --> 00:10:14,000 internet service, we can focus on the quarter by quarter six 216 00:10:14,000 --> 00:10:17,500 percent 10 percent down. That's not where I'm focusing. 217 00:10:17,500 --> 00:10:20,600 I'm focusing on the overall story arc are so that's my 218 00:10:20,600 --> 00:10:21,300 thoughts. So far. 219 00:10:21,400 --> 00:10:23,300 Hope you enjoyed this update. See you in the next one.