Bill Ackman loses $400M dumps entire Netflix stake after just 3 months(businessinsider.com)
businessinsider.com
Bill Ackman loses $400M dumps entire Netflix stake after just 3 months
https://www.businessinsider.com/billionaire-investor-bill-ackman-loses-400m-dumping-netflix-shares-subscribers-2022-4
52 comments
Every time Netflix raises their price, it hits the news, and people think "hmm, maybe I should cancel Netflix." This is antithetical to their success so far, which has been a cheap enough subscription that people stay subscribed because it's easier than unsubscribing when they aren't using it. It is insane to me. Absolutely insane. That they have been raising prices as frequently as they have. This isn't a rent controlled apartment, guys. If you need more money, fine, raise the prices once, and if that doesn't work, find another approach. Or at least grandfather in existing subscriptions so you aren't making your entire customer base reconsider their subscription every six months.
(As an example, I was grandfathered in to Google Music's two-dollar-cheaper plan for a few years, and that alone was the only reason I continued paying for Google Music).
(As an example, I was grandfathered in to Google Music's two-dollar-cheaper plan for a few years, and that alone was the only reason I continued paying for Google Music).
Is it really surprising that a service that gained tons of subscribers due to lockdowns loses a lot of them again once the lockdowns end?
They didn't even really lose them, Netflix gained subscribers if you exclude Russia.
Not accounting for Russia they'd still have been 2 million subscribers short of the forecast of 2.5 million subscribers.
And they're forecasting a loss of 2 million more in Q2, which makes the loss of 200k in Q1 look small.
And they're forecasting a loss of 2 million more in Q2, which makes the loss of 200k in Q1 look small.
Netflix's core competency was the best distribution (DVD by mail then streaming) and not the best content. Their competitors can beat them on content because that's their competency, distribution is commoditized at this point.
This is an example where they were ahead of the industry with distribution and now that their competitors have invested in infrastructure/distribution, supply chain (movie/show production takes time), marketing, and have competing products the competition is fierce when your price is the highest.
Now replace Netflix with Tesla and this could be the same case in the automobile market in a 3-5 year span. Market leader because they lead the industry in one element but once that tech (batteries/EV/charging network) is commoditized, the market leader could suffer.
This is an example where they were ahead of the industry with distribution and now that their competitors have invested in infrastructure/distribution, supply chain (movie/show production takes time), marketing, and have competing products the competition is fierce when your price is the highest.
Now replace Netflix with Tesla and this could be the same case in the automobile market in a 3-5 year span. Market leader because they lead the industry in one element but once that tech (batteries/EV/charging network) is commoditized, the market leader could suffer.
Here’s the difference I think between the Netflix and Tesla story.
Netflix was in a new market. No one had serious streaming. They had content, but didn’t use the internet to sell it. They borrowed content and did the stream thing. The “moat” was “could NBC etc figure out how to put pictures on the internet”. The answer is apparently yes, and then they yanked their content back. Now Netflix has to reproduce Disney / marvel / all the bug content makers to compete.
Tesla is much more an established market. Yes battery car is new. But ford etc have huge huge legacy commitments. A culture of outsourcing. Software as a frill not a core feature. A legacy method of distribution (dealers). Ford can’t just drop their dealers network.ford can’t just fire their pension obligations. They are very much “stuck” in their direction.
If Tesla is topped, I very much expect it to come form a rival startup and not legacy auto. 12 years in and I see no signs the legacy automakers are doing the right things. Still no OTA updates with regular frequency. You still have to argue with dealer over price and deal with scummery.
Netflix was in a new market. No one had serious streaming. They had content, but didn’t use the internet to sell it. They borrowed content and did the stream thing. The “moat” was “could NBC etc figure out how to put pictures on the internet”. The answer is apparently yes, and then they yanked their content back. Now Netflix has to reproduce Disney / marvel / all the bug content makers to compete.
Tesla is much more an established market. Yes battery car is new. But ford etc have huge huge legacy commitments. A culture of outsourcing. Software as a frill not a core feature. A legacy method of distribution (dealers). Ford can’t just drop their dealers network.ford can’t just fire their pension obligations. They are very much “stuck” in their direction.
If Tesla is topped, I very much expect it to come form a rival startup and not legacy auto. 12 years in and I see no signs the legacy automakers are doing the right things. Still no OTA updates with regular frequency. You still have to argue with dealer over price and deal with scummery.
Tesla would crush it if they had an offering outside the luxury market segment. They have 2.5% of US sales and operate completely in the luxury segment which is 5% of US sales altogether. Model 3 starts at $46k, a BMW 3 series is cheaper.
If they built a lower range, no frills, compact commuter car with lower margins (their margins are insane - like 20%+) and higher quantity produced they would end up so far ahead of anyone else because they could be in that market segment now-ish. The traditional car companies are probably 1-3 years away from mass producing EVs, maybe longer. How many households have a primary "family car" and a secondary commuter/small trip car? That 2nd car could easily be an EV with a smaller range (200mi). Its a much larger market segment than luxury.
If Tesla just sticks to luxury segment, their story could be similar to Netflix or maybe close to the betamax vs VHS story (betamax was better technically but lost).
If they built a lower range, no frills, compact commuter car with lower margins (their margins are insane - like 20%+) and higher quantity produced they would end up so far ahead of anyone else because they could be in that market segment now-ish. The traditional car companies are probably 1-3 years away from mass producing EVs, maybe longer. How many households have a primary "family car" and a secondary commuter/small trip car? That 2nd car could easily be an EV with a smaller range (200mi). Its a much larger market segment than luxury.
If Tesla just sticks to luxury segment, their story could be similar to Netflix or maybe close to the betamax vs VHS story (betamax was better technically but lost).
Right. And they want to but need more batteries. If they can ramp that up, they can totally sell a stripped down model3 for a good price and get a huge % of the market.
I think Tesla is extremely overvalued, very curious to see how it plays out
If you think it's overvalued then you should be short the stock. We've seen how that played out for other shorts.
And the market will stay irrational longer that somebody can stay solvent...
Another way to say that you don't want to put your money where your mouth is.
Another way of saying that they have identified better investment opportunities.
It is quite childish to insist that someone who questions the value of Tesla must put their money on it. It’s akin to lame-ass playground bullying: “You don’t like that, so I dare you to eat it!”
It is quite childish to insist that someone who questions the value of Tesla must put their money on it. It’s akin to lame-ass playground bullying: “You don’t like that, so I dare you to eat it!”
No, not really. I'm just explaining how a real trading desk works. If you express an opinion without putting a trade on, that opinion is worthless.
This isn't a trading desk, this is an internet forum where opinions are worth points, and the points don't matter.
Setting up an account with a broker to do options trading requires a lot more capital or margin and requires a lot of research to understand puts/calls, hedges, etc. Buying stocks of other companies you believe will grow is a perfectly fine approach.
One can have an opinion about a company and not do anything with the stock. One can also have opinions about laws, political candidates and ice cream flavors and not do anything about them as well (at least in the US, other countries may silence political opinions).
Setting up an account with a broker to do options trading requires a lot more capital or margin and requires a lot of research to understand puts/calls, hedges, etc. Buying stocks of other companies you believe will grow is a perfectly fine approach.
One can have an opinion about a company and not do anything with the stock. One can also have opinions about laws, political candidates and ice cream flavors and not do anything about them as well (at least in the US, other countries may silence political opinions).
No it doesn't, you just need a decent credit score and enough bravery/foolishness to click the "I know what I'm doing" box. Usually they'll have a higher level for margin trading and certain strategies that requires something extra but just writing secured contracts and buying options requires almost nothing.
I am putting a trade on. The stock is overvalued but I am not shorting because Tesla is a cult. I put a trade instead on another stock.
But I do. I put my money somewhere else when I see a Tulip run.
>Now replace Netflix with Tesla and this could be the same case in the automobile market in a 3-5 year span. Market leader because they lead the industry in one element but once that tech (batteries/EV/charging network) is commoditized, the market leader could suffer.
Nobody chooses their streaming service based on the image it projects. Tesla "won" some demographics and that's gonna be hard to shake.
Nobody chooses their streaming service based on the image it projects. Tesla "won" some demographics and that's gonna be hard to shake.
I have found the vast majority of Netflix's original content from the last couple years to be pretty much uniformly awful. I really don't know why I have stayed a subscriber given that I almost never watch it and already have Amazon Prime Video "for free" and also YouTube Premium (which btw is a much, much better value proposition in my book than Netflix at this point). I think it's mostly inertia and the fact that it's not that much money. I suspect many others are in the same boat, and the company is really playing with fire by messing around with big % price increases and password sharing crackdowns. When inertia is your friend, you shouldn't do anything to rock the boat!
In what way is the content awful? I had a subscription 4-5 years ago that I cancelled due to very bad client support, but the content was quite decent. All I hear from people that still have Netflix is that the content is bad, when I ask in what way most people tell it turned very political/PC. One of the most viral pictures in my area a few weeks ago was photoshopped movie poster "A Netflix original" with "Zelens'kjy" as movie name and a black guy with a M16 as the main character. Is this a thing?
I do believe that their original catalog has gotten very political and PC over the years but my largest complaint is that most of their originals now (with a few exceptions) are very formulaic and just not not written well. They're falling into that same trap milking of certain shows to their illogical conclusion while cancelling others for seemingly no reason beyond it wasn't an _instant_ hit.
With people having been stuck indoors for the past two years it's unsurprising that formulaic, poorly-written, message-driven content isn't keeping them in front of their screens.
With people having been stuck indoors for the past two years it's unsurprising that formulaic, poorly-written, message-driven content isn't keeping them in front of their screens.
>> One of the most viral pictures in my area a few weeks ago was photoshopped movie poster "A Netflix original" with "Zelens'kjy" as movie name and a black guy with a M16 as the main character.
I would not be surprised to see a netflix remake of the original movie just like that. Perhaps the main character would also have a more "diverse" sexual orientation. It's really that all the movies I've watched recently on netflix play the same note. They seem to produce movies just to tick some boxes.
I would not be surprised to see a netflix remake of the original movie just like that. Perhaps the main character would also have a more "diverse" sexual orientation. It's really that all the movies I've watched recently on netflix play the same note. They seem to produce movies just to tick some boxes.
FWIW, Noob me assumed Netflix's streaming biz had plateaued once they entered the video games biz.
How'd that biz strategy meeting go? You're getting crowded out of the market for your core biz. So you decide to enter a more crowded, more competitive market, for which you have no history or culture.
Grow or die, right? Too bad there's not an option for "That was a fun ride. Thanks everyone. We're switching from being a growth stock to paying dividends."
How'd that biz strategy meeting go? You're getting crowded out of the market for your core biz. So you decide to enter a more crowded, more competitive market, for which you have no history or culture.
Grow or die, right? Too bad there's not an option for "That was a fun ride. Thanks everyone. We're switching from being a growth stock to paying dividends."
for the record, i absolutely loath needing 3+ subscriptions to streaming content providers AND a delivery bill (internets) just to enjoy what comes out to 5 or 6 "shows/movies" a month. No, I do not have a reasonable solution, just griping
I hear you. We have 5 streaming services, and my wife enjoys them all.
I have experimented with just buying movies on Google Play and Amazon Prime, and a few series on Apple TV. If it was just me in our household, I would go this route.
I have recently retired and I expected to spend more time watching streaming content but the opposite has happened. I find reading, walking, or sitting outside feels like a better use of my time.
EDIT: if people pay for Amazon Prime for the shipping, then just using Prime content augmented with buying content otherwise unavailable seems like a good plan.
I have experimented with just buying movies on Google Play and Amazon Prime, and a few series on Apple TV. If it was just me in our household, I would go this route.
I have recently retired and I expected to spend more time watching streaming content but the opposite has happened. I find reading, walking, or sitting outside feels like a better use of my time.
EDIT: if people pay for Amazon Prime for the shipping, then just using Prime content augmented with buying content otherwise unavailable seems like a good plan.
Maybe rotate through the services on a quarterly schedule? Cut your costs to a fifth of what they are now?
I have mentioned that possibility to my wife. I am well off financially, but I am frugal. I love my local library.
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Are SaaS and internet subscription companies in general in a bubble due to low interest rates?
Everything is in a bubble due to low interest rates. Doesn't matter how big or powerful a company is, it's simply no match for the US Government as far as investment risk is concerned.
Here's the real money question. What happens to all of our startups when the bubble compresses?
Why would he take this loss? Why not wait it out and sell when it gets a bit higher again?
Moral of the story is that even billionaries have paper hands!
Yup, its clear that NFLX is on a rough patch but I'm sure they'll recover.
This feels like a rookie mistake.
This feels like a rookie mistake.
I don't think they see a possible recovery for Netflix here.
It is that? Or maybe they discovered whatever model they had setup for Netflix was flawed, and they just decided to dump it and move on.
Most valuations these days are predicated upon market sentiment, low interest rates, rapid growth, and forecasts into future cash flow growth. Should any of these crash into reality, the proverbial faeces hit the fan, and the valuations disappears like the smoke and mirrors they are. Nothing grows 20% YoY forever. It's all unicorn farts and VC pixie dust powering these high flying valuations.
Sure, many companies have this problem. But does Netflix? They have been making a profit for quite some time. They PE ratio is 20, which is not high compared to other companies. Do they need to grow to be profitable? If they can cut costs a bit and stabilize subscription levels, they should be fine. What am I missing?
The growth is baked into the valuation. I don't disagree with your ideas, but so much is built on perception. Share prices fall. Capital becomes more expensive. Options aren't worth as much. Employee morale drops. Profit isn't the only or main measure of success these days, which is unfortunate. As a long term shareholder, I'd be somewhat concerned about their ability to compete and deliver, but I'd be fine with their current profit levels. Not at current valuations however.
> Moral of the story is that even billionaries have paper hands!
To be perfectly fair, this level of volatility is not even seen in BTC anymore, wow! You have to go to the super leveraged exit scam alts to see a 62% drop.
For all this talk about stability being critical to the health of the established markets, this really is egg on the face when a FAANG has taken such losses on a service which they have this much market-share on in comparison to the rest of the Industry.
Netflix's share price peaked in November 2021 and is about 62% lower year-to-date.
To be perfectly fair, this level of volatility is not even seen in BTC anymore, wow! You have to go to the super leveraged exit scam alts to see a 62% drop.
For all this talk about stability being critical to the health of the established markets, this really is egg on the face when a FAANG has taken such losses on a service which they have this much market-share on in comparison to the rest of the Industry.
Netflix's share price peaked in November 2021 and is about 62% lower year-to-date.
False. Many not scammy businesses decline 62% in YTD figures. The decline potential is obvious… Netflix has enormous operating leverage, which Bill mentions in his official note. Operating leverage magnifies the impact of marginal subscribers.
Lol how many $100B+ market cap businesses decline 60%+ in 6 months? Parent's point is that this is unheard of for an established player and makes stability of FAANG look really bad.
Not many because they have not been around very long. I’d guess few of them would be old enough to drink alcohol in the US. It wasn’t until ~2000 companies started to cross the $100 billion market cap threshold.
Sure, but don't get hung up on the $100B number. The overall point being made is that FAANG is seen as a rock of stability compared to crypto and yet has experienced massive price change over a relatively short amount of time. The point of mentioning the market cap is that you'd expect volatility to be very low. Just shows you that the stability is not quite as stable as previously assumed.
Operating leverage goes both ways.
Every subscriber Netflix loses is a direct loss of revenue with little to no change in operating costs.
FANNG is not stable. Crypto is all bespoke/custom so it depends.
Commodities are stable. Nonproductive assets are stable. Think about it like you’re bidding on future expected cash flows. The range of cash flow estimates is enormous for FANNG.
Every subscriber Netflix loses is a direct loss of revenue with little to no change in operating costs.
FANNG is not stable. Crypto is all bespoke/custom so it depends.
Commodities are stable. Nonproductive assets are stable. Think about it like you’re bidding on future expected cash flows. The range of cash flow estimates is enormous for FANNG.
Anyone can see that the other players have caught up, and their brand does not seem to have that pull anymore, especially when paired against the likes of Disney, Marvel, DC, HBO, etc.
Their content has a lot more competition, and the pandemic has altered the dynamics of streaming.
I guess most households have at least a couple of streaming subscriptions if not more, and dropping off NF is easier, especially against rising prices and restrictions on sharing.
Now, they have to fight head on with the big studios who have a whole ecosystem with them.
I frankly wonder why anyone would invest in NF at this juncture. I would expect subscriber growth to taper off, and their pricing flexibility is limited due to competition. Also, price sensitivity for streaming seems to be particularly high, perhaps amplified by social media.
Atleast with the cable TV, you get hundreds of channels. Now, the fatigue of selecting content is very real. Also, the algorithms are crap on NF.