Our timing on this one has been poor, NFLX has rallied ~$100 since we started working on it. We missed the short term opportunity.
We wanted to communicate our opinion that Netflix deserves its place in the "winners bucket", it is a compelling business model, and increasing competition is unlikely to disrupt its value proposition to consumers. In short it has already won the battle.
Subscriber scale enables Netflix to outspend its competitors when bidding on content, which enables NFLX to have more subscribers. It is a virtuous circle, but to be the winner NFLX has / had to outspend its competition.
Hence the debt funded investment into content and negative $3bn of FCF a year, which is what bears consider dangerous, is more an investment for achieving unbeatable scale.
We would argue that Netflix’s value proposition is now so solid that it no longer competes exclusively with other streaming services. Given the quantity and quality of programming that $10bn+ can buy, NFLX stands by itself.
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