Dream On, Netflix … Dream On!
Every time Netflix (Nasdaq: NFLX) looks in the mirror … all these competitors in the market getting clearer. The past is gone…
And it went by, like dusk to dawn. Isn’t that the way? Every company’s got its dues in life to pay.
And if you think Netflix is still a growth company … dream on. (Dream On! Dream On! Aaaaaahahaha!)
Last night, Netflix stepped into the earnings confessional to report some rather solid third-quarter results. Earnings, revenue and subscriber growth all beat Wall Street’s expectations.
Here are the numbers if you’re interested:
• Earnings per share: $3.18 versus $2.56 expected.
• Revenue: $7.48 billion versus $7.48 expected.
• Subscriber growth: 4.38 million versus 3.78 expected.
Netflix’s fourth-quarter guidance, however, was a touch light:
• Earnings per share: $0.80 versus $1.13 expected.
• Revenue: $7.71 billion versus $7.66 billion expected.
• Subscriber growth: 8.5 million versus 8.4 million expected.
Mr. Great Stuff … those look like excellent numbers! What gives with all the Netflix hate?
They’re good, I’ll give you that. But excellent? Sweet dreams are not made of these.
That’s the problem: This isn’t the kind of growth that Wall Street has consistently priced into NFLX stock. We’re talking a mere 16.3% year-over-year rise in revenue — a far cry from the 30%-plus gains Netflix used to see.
I’ve been telling you Great Ones for nearly a year now that Netflix’s growth glory days are over. In fact, I said as much back in April:
Now, you’re probably looking at Netflix’s subscriber growth forecast for 8.5 million subs and thinking I’m crazy. I’m not. My mother had me tested.
Still … and I can’t believe I’m saying this … I agree with Deutsche Bank on this point:
Don’t get me wrong: Netflix’s growth heading into the end of the year will be good. I mean, the winter lineup looks ridiculous: The Witcher, Stranger Things, Money Heist, Sex Education … there’s a lot of new streaming content coming.
However, Wall Street already knew about all of this. And it’s already priced into NFLX stock. In other words, don’t expect a major rally … we already know all of Netflix’s secrets.
What’s more, despite that lineup, growth is still slowing from an historical perspective. Revenue growth is slowing, subscriber growth is slowing … and, more importantly, gross margins are tightening up as Netflix spends willy-nilly on new content.
This is what the future looks like for Netflix. It’s not bad … but it’s not the growth many on Wall Street got used to. If you own NFLX stock, keep holding — it’s a solid long-term investment. But, if you’re looking for big tech growth:
Stream with me, stream for a year.
Stream for the laughter and stream for the tears.
Stream with me if it’s just for today.
Maybe tomorrow, high growth will go away.
But don’t dream on long enough that you forget to register for The Final Run Up!
On Tuesday, October 26 at 8 p.m. Eastern Time — we’re going live with our first-ever Great Stuff special event. And, trust me, you don’t want to miss it!
My guest for this one-of-a-kind event is none other than Keith Kaplan, CEO of TradeSmith. Together, we’ll show you the powerful strategy that could let you unlock even bigger gains from The Final Run Up — as much as 6X bigger — from stocks you already own.
The Good: Wake Me Up Before You Winnebago
Remember all those times we mentioned Winnebago’s (NYSE: WGO) intense growth earlier on in the pandemic? What with everybody leaving their beige-walled abodes to take to the open road?
Yeah, Winnebago nearly doubled that already-tremendous pandemic performance … at least as far as net income is concerned. On the earnings front, Winnebago earned $2.57 per share and destroyed analysts’ targets for $2.01 per share. Revenue also took off like a shot, reaching $1.036 billion and trouncing estimates for $959 million.
And the beat goes on! CEO Michael Happe was more than happy to list off all the other merit badges that Winnebago earned this quarter:
Now that’s something for WGO investors to be Happe about. Plus, within the past week, the highway star also mic-dropped its plans to reach zero emissions by 2050. It sounds like someone could speed up that timeline by a few decades by looking at hydrogen fuel cell tech instead of batteries, but that’s just me…
For all the confidence and rosy outlooks in its report, Winnebago shares were left sloshing around like an upset stomach on an RV water bed — long story, don’t ask — and WGO ended the day about 2.4% lower.
The Bad: Not Another Supply Chain Slipup!
It seems like only yesterday I was telling you how inflationary fears and investor sentiment were driving ASML Holding’s (Nasdaq: ASML) stock lower and not the chipmaker’s business fundamentals or its growth potential … oh yeah, probably because it was practically yesterday.
Just when I hop on my soapbox to tell y’all how awesome ASML is, the semiconductor superstar goes and cuts its revenue guidance for the upcoming quarter.
Well, ain’t that just the fly in our soothing sentiment-driven salve?
I’m sorry, Mr. Great Stuff. I know you meant well.
Sometimes it just be like that. But never fear — all’s not lost when it comes to ASML Holding, no siree! Everything I told you just a few days ago regarding ASML still stands: Its business model, products, operations and even revenue have all outperformed across the board.
The problem really comes down to supply chain issues that are creating a materials shortage on ASML’s part, making it hard for the company to keep up with future chip-making equipment demand.
To be clear, supply chain catastrophes have impeded growth in all kinds of businesses and industries — I mean, even Philip Morris (NYSE: PM) is blaming the chip shortage on its latest IQOS flop. So, this isn’t an ASML-specific problem.
Furthermore, ASML’s fourth-quarter outlook isn’t “bad” by any means: It still expects sales between $5.7 billion and $6.6 billion, with gross margin in the 51% to 52% range. While that’s down from ASML’s original 55% gross margin target, it’s still pretty damn good.
The point I’m trying to make here is that ASML will be just fine … eventually. We’re still in the middle of an epic chip shortage, and ASML basically is the supply chain for high-end seven- and five-nanometer chips in the semiconductor business.
While I’m not adding ASML to the Great Stuff Picks portfolio because … reasons … I still think it’s a solid chip investment with huge upside potential.
If you’re a thrill-seeking Great One who doesn’t mind a little volatility, ASML might be a great long-term holding despite this latest setback. As always, the choice is yours … and yours alone.
The Ugly: What’s In A Name?
Just when I think I’ll be able to go a whole week without mentioning Facebook (Nasdaq: FB), Zuckerberg goes and does something that sucks me right back in. *shakes fist angrily at the sky* Buckle up, Great Ones — this one’s a doozy.
This morning, rumors circulated that Facebook’s changing its name in a dramatic company rebranding effort that reflects its new “metaverse” platform — a digital space where people can work, shop, game and do other day-to-day activities via VR headsets and augmented reality. Or something along those futuristic lines.
The rebranding endeavor conveniently comes as Facebook faces intense scrutiny: Remember Frances Haugen and her whistleblower wiles? Yeah, we haven’t forgotten about that … and apparently, neither has anyone else, which is causing big problems over at Facebook HQ.
Apparently, no one still cares about Cambridge Analytica, though… huh.
Clearly, Facebook’s only way forward is to assume a brand-new identity and hope that everyone — but namely FB investors — forgets its sordid and seedy past. Because cleaning house internally and doubling down on civic misinformation concerns clearly isn’t an option…
To be clear, if the rumors are true, Facebook will likely rename its parent company while maintaining all its original app brands: Facebook, Instagram, WhatsApp and Oculus. We went down this road before when Google decided it wasn’t just a search engine and reorganized itself under holding company Alphabet.
The sad thing is that this move will likely work in Facebook’s favor. Given how short peoples’ memories are these days, I can see the “metaverse” rebrand taking center stage over Facebook’s recent failures.
And while that’s good for FB investors over the long term … it’s still an ugly, underhanded move on Zuckerberg’s part.
Almost as bad as spinning off your baby powder business to avoid potentially trillions in liabilities. I wonder if Zuckerberg knows how to two-step…
It’s poll time, Great Ones! If you haven’t shared your market hot takes with us yet, the time has come.
Granted, you can always drop us a line anytime at GreatStuffToday@BanyanHill.com — especially if you have more thoughts than a mere poll can satisfy.
In last week’s poll, we wanted to know how you Great Ones typically handle volatility. Granted, everyone has a plan until they get punched in the portfolio … or something like that … but it’s still nice to see how y’all think you’ll react when the time comes.
Wait, when what time comes? What the … did I miss something wicked coming this way?
Don’t tell me you’ve not heard about The Final Run Up yet! We’ve been yappin’ your virtual ear off about it all week. You can catch up on this special event right here, right now. (I’ll wait for you to check that out, I am an email after all.)
Anyway, here’s how you voted last week:
• 6% of you agreed that volatility is the pits … but hey, look! Fire sale prices.
• Another 23.2% welcome the volatility like the chaos-seeking fiends y’all are. (Trade on!)
• And 21.7% pretend you’re in Jurassic Park and just hope the market dinosaurs don’t see you.
Oh, and 1.4% of Great Ones are ditching stocks, grabbing their golden ingots and heading for the bunker. There’s always one of you preppers out there, but I never judge … publicly. Does your bunker have Netflix, at least? How about bourbon? Got room for one more?
Great Ones love chiming in on Netflix. Apparently, y’all also love telling the future. Every other time we polled you about Netflix, the majority vote has come true … or is trending that way.
Way back in the so-distant past — January, that is — almost 53% of you predicted that 2021 would be the year that Disney’s many-tendrilled streaming behemoth would overtake Netflix for the throne. I mean, the year’s not out yet … but the Mouse’s House is trending toward that streaming dominance, albeit at a pace that still can’t quite please the Street.
Not long after that we asked if you thought Netflix had peaked. In April 7’s poll, the votes were still neck and neck, but a 54% majority agreed that Netflix’s high-growth salad days were over … and that its transition to blue-chip boredom was underway.
Obviously, we have come to consult all ye Netflix oracles once more.
Given what we discussed earlier about Netflix’s new low-growth future … would you still invest in NFLX?
Click below and let me know:
Of course, if you have more thoughts on these meaty market matters, by all means, write to us!
GreatStuffToday@BanyanHill.com is your one-stop shop for ranting and raving to your heart’s content. If you knock on wood, grab your rabbit’s foot and say a few Hail Mary’s, you might just see your email in bright bold virtual print — Friday Feedback is just two days away!
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff
