【2024.10】Netflix's performance has increased more than 30 times in the past decade, how do you view it?

Let's say the star stocks in US stocks, $Netflix (NFLX.US)$ It must be 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. Thanks to its strong performance in history, Nefei has also become a favorite of many US equity investors.

Nai Phi will release its latest financial report after the U.S. stock market close on October 17. Every time a company publishes results, perhaps it means a good deal or investment opportunity. Before that, investors need to figure out how to understand its performance.

As one of the leaders of the streaming industry, Nefei has experienced a period of dividend growth in the industry, and growth momentum is also stable today. So what about Nefei's performance? We focus on 3 key points: revenue growth, content asset investment and cash flow, profit margins.

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 about 7.8% in Q3 2023 and further accelerated in 2024Q2 to about 16.8% year-on-year growth. For future results, we need to observe whether Nefei's revenue growth continues to accelerate the rebound. 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 nearly two years ago, Nafi has started adding a lower monthly ad package, while earning some subscriptions, but the percentage is very low.

Therefore, the number of paid users can be said to be at the root of Nefei's performance. The more users, the greater the potential for revenue. In terms of overall trends, Nefei paid users are on a growth trend. In Q3 2023, Nefei paid users increased by almost 9 million compared to the previous quarter, and in Q4-2024Q2 2023, Nefei's single-quarter net user growth remained at a high of over 8 million, with a total number of users reaching approximately 0.278 billion.

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, NORTH AMERICAN MARKET ARPU SLIPPED BRIEFLY IN 2024Q2 AFTER RISING FOR SEVERAL CONSECUTIVE QUARTERS. The Lamé market has fallen slightly in almost 3 quarters, while the European market has remained stable, with Asia Pacific affected by lower single price advertising packages and lower overall ARPU.

Starting in Q4 2023, Nefei began raising prices for core regions such as the US, UK and France. Price increases help ARPU levels, thereby increasing the company's overall profitability, but also impacting demand. If users can't accept higher prices, foot voting is bound to affect the number of Nefei users Quantities.

Therefore, we also need to focus on whether paying users of Nefei can continue to maintain good growth, and if users can maintain a higher growth momentum after price increases, thereby driving rapid revenue growth, this indicates that Nefei's competitiveness and attractiveness to users are not good; conversely, if ARPU increases Since then, Nefei's user growth momentum has slowed significantly and even declined, and the outlook for Nafei's revenue growth may be difficult to say. However, after the 2024Q1 results, management announced that paid user numbers and ARPU will no longer be published from 2025Q1, so we may need to focus more on revenue growth and earnings growth in the future when these two metrics are no longer transparent.

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 high-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 input 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 as two metrics. In terms of content cash expenditures, Nefei has reduced content spending for six consecutive quarters, reaching nearly 30% year-over-year in Q3 2023. However, in the fourth quarter of 2023, perhaps as earnings growth returned to normal, the reduction in Nefei content spending was reduced by only 6.2% year-on-year. By Q1 2024, Nefei content spending reached $3.92 billion, up 39.5% year-on-year, and in 2024Q2, Nefei content spending rose further to $4.42 billion. Driven by continued revenue growth, Nefei's content investment is also expanding channels again.

In terms of the size of content assets, since inventory content may not be seen by anyone if it is too old, it is not worth money, so depreciation is required in accordance with accounting policies. The size of Nefei's content assets has also been declining in recent quarters due to the growth of its content assets and not catching up with the pace of depreciation of its content assets. In 2024Q2, Nefei's content assets reached approximately $31.93 billion, a slight increase on the market.

Nefei's past moves to reduce content investments have been detrimental to user engagement and revenue growth, but the benefit is that its free cash flow has improved dramatically. Previously, Nefei's free cash flow was often negative, but in the last 7 quarters overall it exceeded the same period net profit level. In the face of an increase in cash on account, Nefei, which has rarely repurchased stocks, has begun to repurchase continuously for almost five quarters, adding a boost to its share price performance.

However, in 2024Q2, as Nefei's content investment returned, its free cash flow was also hit, dropping sharply to $1.2 billion year-on-year, and the scale of share buybacks was reduced.

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, as Nefei's revenue growth continued to slide below 20% and content cash outlay continued to rise, 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 five quarters, as Nefei's revenue growth began to warm up steadily and content investment declined for five consecutive quarters, Nefei's profitability also improved, with both gross and net profit margins beginning to rebound. In 2024Q1, the NAF profit margin reached 46.9% and the net profit margin reached 24.9%, all at a new all-time high. In 2024Q2, Nefei's gross margin and net profit declined, but remained at a higher level. For future results, we can continue to see whether Nefei's profit margin will remain at a higher position.

Writing here, you may have some new knowledge about how to read Nefei's results. It's worth mentioning that every time many star companies post results, it can mean a tough trading opportunity for different types of investors.

For example, if investors feel that a company's recent performance will release some positive signals and favor short-term stock prices by interpreting past performance and incorporating recent progress, investors may consider doing more, doing more could be to consider buying a positive stock, or considering buying bullish options, etc.。

Conversely, if investors feel that the latest performance of a company will be less than optimistic and put pressure on short-term stock prices, investors may consider going blank, or consider buying bearish options, etc.

Of course, if investors feel that the direction of a company's performance is not very clear, but the stock price may fluctuate significantly upwards or downwards after the results are released, then investors may consider doing more of its share price volatility and consider buying both bullish and bearish cross strategies to get a grip Potential opportunities.

Finally, to summarize,

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

From the point of view of content asset investment and cash flow, Nefei has significantly reduced its investments for several consecutive quarters and improved cash flow, but over the long term, content asset investment needs and revenue growth and cash flow 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.

Each time a company publishes results, it may bring potential trading opportunities. Investors can consider the right types of trades based on their individual risk tolerance.