To speak of the star stocks in US stocks, Nefei is certainly one of them. An increase of more than 30 times in the past decade is enough to rank in the top five among giant companies with a current market capitalization of more than 1 trillion. With its strong performance in history, Nefei has also become a good heart for many US equity investors.

As one of the leaders of the streaming industry, Nai Phi has experienced a period of dividend growth in the industry, and growth momentum is also stable today. So what do you think of Nefei's report? We focus primarily on 3 key points: revenue growth, content asset investment and cash flow, margin.

1. Revenue growth

Nefei's revenue for almost two years has gone through a period of rapid growth of more than 20% in earlier years. In Q4 2022, Nefei's revenue grew at a rate of less than 2%, with almost negative growth. Well, in the following few quarters, Nefei's revenue growth accelerated to around 7.8% in Q3 2023, and a double-digit increase in Q4 2023, up 12.5% year on year. For future reports, we need to observe whether Nefei's revenue growth will continue to accelerate the rebound trend. Specifically, we need to observe two indicators.

The first indicator is the number of paid users. Nai Fei's business model is primarily about attracting users to pay to watch with high-quality video content. Primarily, users earn monthly subscription fees, and almost two years ago, Nafi has started adding a lower monthly ad package, which earns some subscriptions while earning some subscriptions, but the percentage is still low.

Therefore, the number of paid users can be said to be the root of Nefei's performance. The more users, the greater the potential for revenue. In terms of the overall trend, Nefei paid users are on a growth trend. In Q3 2023, Nefei paid users increased by almost 900 million compared to the previous quarter, and by Q4 2024, the net user growth of Nefei was more than 1 million in Q3 2023, reaching a new high of approximately 2.61 billion users.

The reason for the increase in users is largely due to the policy of cracking down on shared accounts introduced by Nai in 2023, so that some users who originally used shared accounts had to purchase separate accounts. In addition, Nephi's lower-priced advertising packages in emerging markets have driven user growth.

The second indicator is ARPU (average revenue per user), after all, the higher the income each user brings, the higher the overall income. Over the past two years, Nefei's ARPU has fluctuated between $11.5-$12 most of the time, with little overall change. Regionally, the ARPU of the North American market is growing, the Rami market is down slightly in 2023Q4, while the European market has remained stable. The momentum has been good in the last 4 quarters, the APAC region is affected by lower single price advertising packages, and the overall ARPU is lower.

In the Q3 2023 quarterly shareholder letter, management mentioned the imminent price increases for core regions such as the US, UK, France, which means that the ARPU of these regions will continue to increase. However, price increases will also affect demand, and if users do not accept higher prices, voting by foot, is bound to affect the number of Nefei users.

Therefore, in the next few quarters, we also need to focus on whether Nefei's paid users can continue to maintain good growth, and if users can maintain a higher growth momentum after the price increases, thereby driving rapid revenue growth, this indicates that Nefei's competitiveness and attractiveness to users are not all right; vice versa If Nefei's growth momentum in the number of users slows down significantly and even declines after the ARPU increases, the outlook for Nafei's revenue growth may also be difficult to say.

2. Content asset investment and cash flow

Nai Fei is able to attract users with paid subscriptions, mainly investing in content from large pens. After all, if it weren't for the explosion of quality TV series like Solitaire House, Nefei might have a hard time hosting hundreds of millions of gold users today.

However, if Nefei spends too much money on content investments, it will also affect cash flow and margin levels. Conversely, if you spend too little on content and not enough quality new content is given to users, then users may not be willing to spend money on orders, which will also affect revenue and profit levels. So, Nephi needs to strike a balance between content input and user experience, with as little content investment and cash outlay as possible, as much user recognition as possible, and revenue and profit growth.

For Nefei's content investments, we can look at content cash outlay and content asset size. In terms of content cash spending, Nefei has been more conservative in recent quarters, with content cash spending declining for six consecutive quarters, reaching a year-on-year decrease of nearly 30% in Q3 2023. However, in the fourth quarter of 2024, perhaps due to the return of earnings growth, the reduction in Nefei content spending decreased by only 6.2% year-on-year.

In terms of the size of content assets, since inventory content may not be seen by anyone if it is too old and not worth money, it is necessary to depreciate in accordance with accounting policies. The size of Nefei's content assets has also declined in the last 5 quarters due to the rapid growth of its content assets and the pace of depreciation of its content assets.

However, while Nefei's reduced content investment is detrimental to user engagement and revenue growth, the benefit is that its free cash flow is significantly improved. Previously, Nefei's free cash flow was often negative, but in the last 5 quarters overall it exceeded the same period net profit level. With the increase in cash on the account, Nefei, which has rarely repurchased stocks, has begun to repurchase continuously for almost four quarters, injecting a booster into its share price performance.

Taken together, there is a certain cyclicality to Nefei's content investment. Over the long term, if Nefei can sustain revenue and cash flow growth that is higher overall than the growth in content investment, it may be a relatively benign situation.

3. Profit Ratio

Content-driven companies like Nai Phi's efforts to attract subscribers will have a significant impact on their bottom line. Invest in the same content, and if it can attract more subscribers and generate more revenue, its profitability may be higher. Conversely, if revenue growth slows and content investment increases conversely, it can also put a lot of pressure on profitability.

Therefore, Nefei's profitability is related to the level of revenue growth and the interest rate on content investment costs.

Since the profitability level of Nefei has a certain seasonality, we can observe a year-on-year change in the Nefei profit rate. Starting in Q4 2021, with Nefei's revenue growth continuing to slide below 20% and content cash spending continuing to grow higher, Nefei's profitability also began to be tested, with its gross margin and net profit ratio declining year-on-year, a downward trend that has continued for 6 quarters.

Until the last three quarters, as Nefei's revenue growth has continued to warm and content investment has declined for five consecutive quarters, Nefei's profitability has also improved, with both gross and net profit margins beginning to rebound. For future reports, we can continue to see whether Nefei's profit margin level continues to improve.

Finally, to summarize,

In terms of revenue growth, we need to keep an eye on Nefei's subscriber count and ARPU to see if they can keep growing while ARPU increases.

From the point of view of content asset investment and cash flow, Nefei's investment has declined in recent quarters and cash flow has improved, but over the long term, content asset investment needs and revenue growth and cash flow conditions remain balanced.

From a profit rate perspective, Nefei's profit rate is influenced by revenue growth and content investment. Nefei's profit margin has improved in recent quarters, and we need to see its continuity.