Netflix and Chill
Netflix ($NFLX) crushed earnings today and gave investors a sigh of relief. Shares rallied after the firm posted better than expected subscriber growth overseas - 6.26 million to be exact. Not only that, but earnings also beat street estimates as Netflix made $1.47 per share, beating street estimates of $1.05.
Shares rose as high as $318.79 in after-hours trading, up almost 11%.
You know what, I can get behind this strategy. I do think that competition usually improves things for the consumer, but it also erodes profits for the firms that are involved. In North America, Netflix has to compete with Disney, Apple, Hulu, Amazon and more, whereas the competition is less cut-throat overseas. Netflix pricing is NOT competitive in countries like India, where I’m from, as they charge almost 5 to 6 times what other streaming providers charge. Even then, I pay for Netflix because their original content is simply better than what others bring to the table.
Here’s the thing though - when it comes to a market such as streaming, I do think that there is a tipping point to growth, even in the international markets. There’ll come a time when Netflix would have saturated its subscriber growth rates and reduced churn. The industry would have solidified with each player having some relative market share. Then, we will witness firms invest a lot more in generating quality content, and that will also be the time when they will try to beat each other rather than enter and grow in a relatively new market. It’s hard to say exactly when that time will come, but it’s not too far in the distant future. Disney’s launch of its streaming platform and Apple’s release of its shows on Apple TV+ will pave the way for the kind of competition that we can expect in the future: that of content, pricing, growth, or all of the above.
If you're interested in what to binge-watch next: here are the most viewed TV Shows in the past quarter
People are Surprised Banks Want to Make Money
I mean, I don’t know why this is newsworthy. Goldman Sachs recently wrote down $80 million on its WeWork stake, and the firm is getting some heat because this was around the same time Goldman was pitching others a $60 billion IPO. Well, here’s the thing: Goldman is an investment bank. They make money via commissions during the book-running process, so it’s in their best interest to pitch a high valuation to investors so that they can earn high fees. At the same time, it is possible for them to underwrite that stake themselves, and lose or make money on it as they sell it to another investor after them. You might question the ethics of the business, but I don’t think you can blame them for doing what they openly say they do.
Zoom Trading
Yesterday I talked briefly about the lock-up period of a firm after an IPO, and what might happen to the stock price of a company after the lock-up expires. I also said that I had personally invested in Zoom put options despite liking the technology. My thesis was that the end of the lock-up period would force several investors to lock in their profits, given that the stock has generated a well over 100% return since its IPO, and that the massive flooding of private shares in the public markets would create an excess supply, pushing down the price of the stock. Of course, this is all theoretically true, and I could’ve been dead wrong - but it wasn’t the case this time.
The stock closed at $67.69 this evening, and during trading hours it had hit $66.70, making my $67.5 Strike Put in the money. I bought the contract for $87, and entered the order to sell it today for $190. But as always, Interactive Brokers screwed up the order and sold it too early. Nevertheless, this was an interesting trade that reaffirmed my hypothesis about lock-ups and basic unit economics.
A word of caution, something entirely opposite could’ve happened, if folks thought that the company was undervalued, and then investors would’ve assumed that the end of the lockup period would urge investors to go on a buying spree now that more shares are available. This could’ve created excess demand and pushed the price up. Anyway, this is what happened, and needless to say, this is not investment advice.
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