Netflix: A Streaming Buy!

Key Takeaways:

• It looks like Netflix might have been bluffing about subscribers. 
• Despite the hype and hysteria, Netflix operates from a position of strength. 
• NFLX remains as strong a buy as ever for long-term investors. 

It’s hard for The Juice to believe Netflix was being wholly forthright when, after losing 200,000 subscribers in Q1, it guided for a net loss of 2 million more in Q2. 

Not only did the company shed just 970,000 subs in Q2, it ended up gaining about 2.4 million in Q3 and predicts it’ll add another 4.5 million in Q4. 

In fact, we think Netflix might have stolen a page from Apple (AAPL)’s old playbook. The Juice loves this excerpt from a 2008 Gawker article that explained how Steve Jobs often directed Apple earnings without even being on the conference calls: 

No one actually believes Apple’s “guidance.” For years, it’s been shown to lowball the actual number so it can surprise Wall Street, a maneuver that no longer surprises anyone. This has reduced Apple’s quarterly earnings call to an exercise in which its chief financial officer pretends he’s not lying, and bank analysts pretend they believe him.

What better way for Netflix to reassert its streaming dominance than to humble itself after a misstep, lower expectations to the gutter, then blow everybody’s mind with “surprise” killer numbers. 

The strategy – or whatever actually happened – has done wonders for the stock: 

Source: Google Finance

Over the last six months, Netflix has absolutely crushed Disney. 

Here’s why. As Netflix noted in its Q3 shareholder letter:

• “In the US, Netflix accounts for 7.6% of TV time, 2.6x Amazon and 1.4x Disney + Hulu + Hulu Live.”
• “Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard – we estimate they are all losing money, with combined 2022 operating losses well over $10 billion, vs. Netflix’s $5 to $6 billion annual operating profit.” (Emphasis added.)

Quite a reversal for a company that predicted carnage for itself just six months ago. 

Then there’s this: 

Source: Variety

Every one of 2022’s most watched streaming shows airs on Netflix. Every single one. 

While there’s no question we were onto something in April when we suggested Netflix manipulated the Stranger Things release date to help stop the subscriber bleeding, it turns out the company’s content – original and third-party – dominates 2022 streaming so far.

• Overall, viewers streamed 124.3 billion minutes worth of content on Netflix this past summer. 
• The next four names on the list combined account for just over 20% of Netflix’s total:
  • Amazon’s 10.3 billion minutes would be a lot less without football. 
  • Disney came in at 10.2 billion minutes. 
  • Warner Bros. Discovery (WBD)’s HBO Max hit 3 billion minutes.
  • Hulu logged a relatively weak 2 billion minutes. 

Then there’s this!

Source: Variety

If Netflix can do all of the above – add subs after saying it’s screwed, be profitable, and blow everybody and their Grandma away on minutes streamed – while keeping its spending in the middle of the pack, why in the world would it bother dropping additional billions on sports? 

This would be a financially irresponsible move, one entities make out of desperation to try to catch up to a streaming OG giant.

The Bottom Line: Most of the companies biting at Netflix’s heels have lucrative balls in the air other than streaming. 

In fact, as Netflix brashly stated, these companies likely lose money on their streaming ventures. In some cases, the billions they pay for live sports help explain the lack of profitability. 

This isn’t to say these stocks aren’t buys, especially Disney. You just buy them for reasons other than their streaming platforms. 

If you want a long-term pure play on streaming, NFLX remains our top pick. The numbers don’t lie, even if Netflix kind of, sort of, maybe does.

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