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Adam Levine-Weinberg

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  • Is Netflix Really Worth Over $10 Billion More Than Time Warner Inc.'s HBO? [View article]
    I would love to see an analysis of the cable vs. internet-only business models for HBO. Unfortunately, I don't have the industry contacts to do a good job with it myself.

    It seems to me like HBO would have already dumped cable if the case for doing so was clear-cut. However, while HBO is sharing revenue, it also gets significant benefits. Most importantly, Netflix spends over $1 billion a year on non-content related stuff. Marketing is the big one, but there's also content delivery, and then the cost of building and maintaining a high-traffic web property.

    On top of that, cable operators often have 3 months or 6 months of free HBO as an enticement to get people to sign up. I would guess that HBO subsidizes that offer in some way, but HBO is still probably getting some amount of money from those subscriptions which is coming out of the cable company's marketing budget.

    Having a dedicated pipeline is also worth something. Plenty of people in the U.S. (myself included) don't have an internet connection that's suitable for full-HD streaming.

    I think these factors all make the benefits of the direct-to-consumer model less clear cut. That said, I agree that the market will probably move that way eventually. It just might take a while for HBO to get there.
    Feb 15 02:05 PM | Likes Like |Link to Comment
  • Is Netflix Really Worth Over $10 Billion More Than Time Warner Inc.'s HBO? [View article]
    As a practical matter, you need broadband internet at home to use Netflix. Pay-TV subscribers (combining cable, satellite, and telco) still outnumber broadband subscribers in the U.S. It's about 100 million pay-TV households vs. 90 million broadband households.
    Feb 15 09:45 AM | Likes Like |Link to Comment
  • Netflix Content Expenses Continue To Skyrocket [View article]
    They don't say anything about individual markets, but the fact is that the contribution loss went from $105 million in Q4 2012 to $57 million in Q4 2013 despite adding a market (the Netherlands), albeit a small market. The Q1 projection is $42 million, and Netflix projections have tended to the conservative side recently.

    If it really looked like some markets were never going to be profitable on a fully allocated basis, Netflix could always just wind them down. I don't think it will need to, though; it just might take a while to build up a sub base in Latin America.
    Feb 13 11:35 PM | Likes Like |Link to Comment
  • Netflix Content Expenses Continue To Skyrocket [View article]
    I wouldn't short cable operators. Even if cable TV goes downhill, these companies tend to offer the fastest internet, which means that they can make a killing providing the pipeline for Netflix and similar services.
    Feb 13 05:06 PM | Likes Like |Link to Comment
  • Netflix Content Expenses Continue To Skyrocket [View article]
    One of my biggest difficulties in trying to value NFLX is the price issue. I just don't have a good sense of how many people would eventually subscribe at $8/month, and how many would continue to subscribe if the price went to $10, and especially if it went beyond that to $12 or $15/month.

    I don't have Netflix. I don't really "get" Netflix. I'm paying $45/month for Comcast and feel much happier with that than with paying $8/month for Netflix. (Maybe I'll change my tune when the promotional period ends and the price goes up to $80 or $90!) Some of it may be taste: I don't really like most of the "edgy" shows that Netflix, HBO, Showtime, etc. seem to specialize in.

    But the real issue is that I want the full cable package for sports and for some current season TV shows that I want to watch. Once I have that, I have so much content on my hands that the marginal value of Netflix is very low. (I also have Prime, which I do use a fair amount.)

    I watched and liked House of Cards, but at most I might sign up for a month at some point to watch Season 2 and then quit again. $8 for a year of Netflix content might be worth it for me, but I'm much happier paying $45 for cable than $8 for Netflix. The stuff on cable is what I actually want to watch.
    Feb 13 05:05 PM | 1 Like Like |Link to Comment
  • Netflix Content Expenses Continue To Skyrocket [View article]
    I agree that the other expenses will continue to grow as well. But I don't think they will continue to grow at 15%-20% long-term. The advantage of being a low-margin business today is that you don't need to get much margin improvement to see EPS rise fivefold or more. A little bit of leverage can go a long way -- albeit probably not enough to support a $400+ stock price long-term.

    As for the DVD segment, it's obviously declining, but not that quickly. Assuming it goes to zero by the end of the decade, that loss would be a fraction of the likely increase in domestic contribution profit. On top of that, international isn't going to post big losses long-term.

    I don't expect international to reach breakeven on a full-year basis until 2017 or 2018. But that's 100% because of expansion start-up costs. The current markets appear to be on track to reach breakeven by Q4 of this year, or Q1 2015 at the latest.
    Feb 13 04:44 PM | Likes Like |Link to Comment
  • Netflix Content Expenses Continue To Skyrocket [View article]
    I'm also bearish on Netflix but I think you've gone a bit too far. Netflix grew pre-tax earnings by about $200 million last year, and there's no reason to believe it can't do roughly the same for the next several years. On the domestic side, the dollar growth in revenue was about double the dollar growth in COGS. Overall, domestic streaming COGS grew 19% last year and I'd expect roughly similar growth for the next several years, but that's pretty manageable given the recent growth rate.

    Also, I would agree that most Netflix subs would not look as kindly on a doubling or tripling of the subscription price as as Brian Bleifeld. However, a price increase to $9.99 in a couple of years probably wouldn't lead to mass cancellations, and it could add $1 billion or more to revenue in a single year, depending on when it occurs.

    I think there's a decent chance that a slowdown in growth and rising costs of international expansion send the stock down to the $200 level later this year or in 2015. There would have to be a really stunning collapse for the stock to fall below $100, though. Just my two cents...
    Feb 13 12:59 PM | Likes Like |Link to Comment
  • Nvidia's Tegra Business Collapses [View article]
    I think you are barking up the wrong tree. The worst is behind NVIDIA in terms of Tegra declines. NVIDIA is guiding to a 10% year-over-year revenue increase this quarter, up from 3% growth in Q4. It's possible that this could still incorporate a small Tegra decline, but it's also possible that Tegra will return to growth.

    As for Q2, the comparison is ridiculously easy. I would be shocked to see anything other than triple digit growth in Tegra sales: Tegra Processor segment sales were just over $50 million in Q2 last year, which was down 70% from the prior year.

    To me, it seems like you're not taking into account the size of the Tegra opportunity. By 2020, smartphone unit sales will probably hit 2 billion worldwide. I'd assume that 50%-60% will be totally commoditized sub-$200 phones, and maybe another 25% would be mid-high end Apple and Samsung phones. But the other 15%-25% of the market could be a $10 billion sales opportunity. If NVIDIA gets 20% of that, it's a really significant number. Add in tablets, gaming devices, cars, etc. and you have a recipe for a very successful business.
    Feb 13 12:37 PM | 4 Likes Like |Link to Comment
  • Amazon: More Likely To Plummet Than To Soar [View article]
    To the author: FYI, Amazon reported earnings after the market closed yesterday. Amazon stock rose 5% during the day mainly because the stock market had a very good day. Today's move will be indicative of how people feel about AMZN's results/guidance.
    Jan 31 08:33 AM | 1 Like Like |Link to Comment
  • How Promising Is The 2014 Outlook For Netflix? A Look In Numbers [View article]
    Comcast had an 8.6% increase in program expenses last year and is projecting 9%-10% this year. It's on p. 5 of the earnings call transcript: http://bit.ly/1jOjtPL.

    Granted part of that is due to sports, which is an area where Netflix doesn't participate. Still, I think the general point holds that content costs have been rising faster than inflation. I saw a story in the WSJ a couple of months ago about how the surge in demand for scripted entertainment is leading to shortages of talent (I think primarily writers).

    As for Netflix's below market-rate content deals, I will admit that I can't quantify it. 3-4 year content licensing terms seem to be quite common, though, so I think this particular headwind won't dissipate until 2015 or even 2016. The Q2 2013 shareholder letter talked about rising content prices (bottom of p.2 into p. 3) and stated that Netflix's long-term content deals would mitigate this inflation. However, that really just means the inflation will creep in over a few years as the long-term deals expire.

    Adam
    Jan 30 12:42 PM | Likes Like |Link to Comment
  • How Promising Is The 2014 Outlook For Netflix? A Look In Numbers [View article]
    Quick correction: Time Warner (TWX) and Time Warner Cable (TWC) split up almost 5 years ago. I think HBO will eventually make HBO GO a standalone service but the problem may be the nature of the existing contracts with cable operators. Also, the cable operators basically do the marketing for HBO in a profit sharing type of arrangement which might cause some duplication of effort if HBO started marketing HBO GO separately. But eventually an internet-only offering seems inevitable.
    Jan 29 07:09 PM | Likes Like |Link to Comment
  • How Promising Is The 2014 Outlook For Netflix? A Look In Numbers [View article]
    Hey Ace... good to see you here!

    I take your point that "no way" is too strong, although it does seem like an incredibly unlikely prospect to me. While it would still take 4 years to get to 60 million, growth isn't likely to go from 6 million to 0 at once. So to keep growing in 2017 at 6M+ subs you'd have to believe Netflix's ultimate market opportunity is near the very high end of its 60M-90M long-term goal. So I guess there's a way, but I just see it as very far-fetched.

    Where I'd really disagree with you is on the content spend. "Legacy" pay-TV providers are encountering 10% annual inflation in content costs. Beyond that, Netflix is trying to move from non-exclusive to exclusive deals (which are obviously more expensive) and original content (which is even more expensive). To top it off, Netflix negotiated some of its current deals when streaming was just getting off the ground and there was no serious competition. So as those deals get renegotiated the cost goes up more than normal inflation.

    Roll that all together, and $400M of incremental content spending gets you maybe 1 House of Cards and $350M in higher payments to content owners for the same stuff. If you look at 2013, my personal evaluation of Netflix's content (admittedly subjective) is that it didn't get much better, if at all. There was a lot of great content added like House of Cards and Orange is the New Black, but also a lot of great content removed, e.g. Downton Abbey, Viacom kids content, etc.
    Jan 29 07:03 PM | Likes Like |Link to Comment
  • How Promising Is The 2014 Outlook For Netflix? A Look In Numbers [View article]
    Look, it's certainly possible that Netflix will keep rolling as you imply and the trend lines you are projecting will turn out to be accurate. But I think if you were to backtest your methodology for the 2009-2012 period, for example, you would find that the trendlines were broken radically almost overnight.

    I don't expect anything like the Qwikster debacle in the next few years, but I do think that Netflix's year-over-year profit gains will peak in the next couple of quarters and profit growth will be slower (on average) going forward, primarily due to the cost of international expansion.
    Jan 29 02:11 PM | Likes Like |Link to Comment
  • How Promising Is The 2014 Outlook For Netflix? A Look In Numbers [View article]
    Didn't you say in the article that Netflix would hit EPS of $5.50 this year? The average analyst estimate is just a tad over $4... although that still might be a stretch if Netflix really does launch in France and Germany this fall.
    Jan 29 02:05 PM | Likes Like |Link to Comment
  • How Promising Is The 2014 Outlook For Netflix? A Look In Numbers [View article]
    Bill, I don't think France/Germany will launch in Q2. The summer months are weaker for sub growth in general due to seasonality, so it doesn't make sense to start incurring fixed content costs when it will be hard to sign up a lot of subs quickly. If you look at prior international country launches, they have all come between September and January. That's why I think the new markets will launch in September or October.
    Jan 29 02:02 PM | Likes Like |Link to Comment
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