NETFLIX: Don't Look Down Article

Trying to decide if I should add to my position after yesterday’s earnings report from Netflix. However, I couldn’t quite pick up the position that Rick Munarriz was trying to convey in his article in Stock Advisor today - Netflix: Don’t Look Down.…

I understand the reference to the Netflix movie Don’t look up, but I couldn’t tell if he thought investors should ignore the negative news from the financial media, or if he thought it was foolish (small “f”) to ignore the warning signs in a potentially failing business model.

Any insight on this would be awesome!

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This is an excellent article. Given the article’s points and what I have read for CMF/TMF notes here, I am still bullish on the stock, but sense there is a possibility that the company is, simply put, maturing and the stock may react as such going forward — i.e., valuation will need to be adjusted via stock-price change. (I added to my position yesterday)

It’s a good thing to keep in mind. What is missing from the article is that the company needs to, as Cobra pointed out a few posts back, widen its business model – engage a real multiplex strategy that does not simply promote the service but is meant to generate its own earnings and to act in synergy with the service, do a real merchandise-sales/licensing strategy, syndicate early seasons of hit content (“Things,” “Ozark,” etc.) on linear/terrestrial stations, and so on. Another thing I would like to know: while I do support the video-game strategy, I do wonder why that lever was pulled first as opposed to the tentpole lever.

Here is a very interesting section from the article:

"The miss itself wasn’t that bad, at first glance. Netflix was targeting 8.5 million in net adds and closed with just 8.3 million more paying accounts than it had at the end of September. It’s the smallest of the seven shortfalls over the past five years. The problem is that a lot of good things happened to Netflix after its forecast.

Squid Game was already a global sensation, but Netflix would go on to put out Red Notice in November and Don’t Look Up in December. The two films would become the platform’s two most-watched new releases. With all of that engagement, it was probably going to be hard to cancel Netflix, so coming up short means that it really dropped the ball in gross subscriber additions."

This is odd because it brings up a question: do the ratings mean anything anymore now that NFLX has reached its current scale? Is it going to be more and more incremental from this point forward? Okay, sure, this movie is a phenomenon, that movie is a phenomenon, in terms of views — but — it’s that age-old question: is it because the platform makes the content at this point? Or, is content still king? In other words: if NFLX granted me the ability to see my screenplay about a streaming service taking over the world turned into a NFLX film, and even though I am a nobody that no one cares about or ever will, would my idea generate billions of views simply because it is on NFLX? If that is the case, then the disconnect becomes clear and understandable, and the market reaction to the forecast might be smart money recognizing an inflection point that becomes clear to the rest of us in hindsight, Dr.-Michael-Burry-“Big-Short”-style (and yes, the director of “Big Short” is the director of “Don’t Look Down”). I’m not saying this is definitely the case, and maybe I’m misunderstanding everything, I’m just throwing this out there.

Personally I think NFLX will persevere in the next several years and create some good growth opportunities. Will it 10X from here or whatever…that I couldn’t say. And will it become a dividend-payer sooner than expected? Also…couldn’t say.

So, to answer TWF’s question, I think what Rick M.'s was saying is that NFLX does have issues right now that it needs to resolve through adjustments to its business model. Again, I bought more NFLX, but I am not counting on it - and he probably isn’t either, if I read between the lines - to deliver the kind of returns it did when it was in extreme-growth mode in terms of stock-price appreciation. I think too he would like more specifics from management. I have only watched a bit of the video call, and as recommended here, I will watch the rest later.

Also want to mention that Rick M. sometimes gets these neat, overlooked angles to a story…truly appreciate all his work/efforts.