Netflix has been one of the biggest business stories to start 2022. The streaming giant is down 70% from the start of the year, mainly due to the company reporting that in the first quarter of 2022 they lost more subscribers than they added for the first time ever. This article thinks the market has overreacted to the news and makes the case for Netflix.
The key conclusion reading this article is that every company has a price. No matter a company’s future prospects, there is price where it starts to look cheap. This article isn’t making the case that Netflix at the start of 2022 – side note: when Bill Ackman invested – was a good buy. Rather the conclusion is a lot more subdued. The author believes that Netflix can follow in the footsteps of the cable TV companies that it disrupted and become a media giant. And the author is willing to pay 17x Netflix’s current earnings for that.
That is an important theme to apply to the markets as a whole at the moment. The past few years, maybe even for the past decade, the market has been largely price insensitive. Whatever price we paid for Big Tech stocks these companies eventually grew into their valuations. Amazon, Microsoft, Alphabet, Netflix, Facebook, Apple – investors were just willing to buy at whatever today’s price was because they forecast 20% or more growth for years to come.
That assumption is now being challenged. Investors are becoming more price sensitive as they realise even the best companies cannot sustain these incredible growth rates indefinitely. That doesn’t make these companies bad companies. It doesn’t even make them bad investments. All it means is that you need to be very focused on the price you’re paying, even for the best companies of our generation.
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