Category: Uncategorized

Investors’ concerns about Disney

Netflix has surpassed Disney in market cap.

What are the concerns for investors? especially vs. an investment in Netflix

1) asset heavy (theme park) model

Theme park risk is exposed during covid. Plus, as theme parks are located across the world, different jurisdictions can complicate the operation.

And it’s trying to expand. In the next 10 years, Disney plan to double global capex to $60bn. Much of that is probably due to the land bank – “In fact, Disney Parks has over 1,000 acres of land for possible future development to expand theme park space across its existing sites”.

It’s a truly unique experience, but also considered as a riskier one vs. Netflix’s spending on content.

And it requires consumer spending on theme parks to double? This might be possible if one family went to Disney Park once in the past decades, and is going to visit twice in the next decade; but could be a burden if one expects visits per year to double for a family.

2) caught up in US-China tension?

Netflix doesn’t directly operate in China, and its financial performance doesn’t depend on China. This can be a relief for investors, who usually don’t want to be caught up in geopolitical tensions.

3) unprofitable streaming?

It takes time to be profitable in streaming, with a stable subscriber basis and a good pricing strategy. It’s actually not that easy.

For CY2023q3, Disney streaming revenue is ~59% of Netflix. Disney had 199mn subscriptions across offerings, while Netflix had 247mn during the same time period, or 80% in terms of number of subscriptions.

Disney’s core Disney+ paid subscriptions are at 112.6 million as of Sep 2023 and lost $420 million in that quarter. Although loss has decreased, it take longer and a bigger scale to become a good income stream for Disney.

Comparing with Netflix, which got $16.64 / month from ~80mn paid membership in US & Canada, Disney got $7.5 / month for its 46.5mn US subscribers.

You can’t double the price overnight. Disney needs to increase its value delivered to consumers in streaming.

Disney announced price hike back in Aug, effective Dec 2023 – from $10.99 to $13.99 / month, or 27% hike for the non-ads plan in the US.

—

New:

Source: https://www.flatpanelshd.com/news.php?subaction=showfull&id=1691641877

 

Old:

Source: https://thewaltdisneycompany.com/ad-supported-disney-subscription-tier-to-launch-in-the-u-s-on-december-8/

Netflix: there is a lot to like

Besides a single quarterly earnings beat, there are many things investor like. Netflix can appeal to both defensive and offensive investors.

1/ a stable positive FCF

For several quarters in a row, Netflix has delivered $1.5bn+ FCF/qtr, and expects 2024 FCF to be ~$6bn. Positive FCF is crucially important in today’s high-interest rate environment.

Btw, Netflix doesn’t need massive capex and doesn’t worry about utilization etc. However, Netflix does need to spend on contents.

This FCF is built upon a $17bn cash spend budget on content for 2024.

If not for the $1B in delayed spending due to the WGA and SAG-AFTRA strikes, 2024 FCF should be $7bn.

$7bn with 4-5% required fcf yield implies a $140-175bn market cap, which was where Netflix was trading at in 2023.

2/ growing TAM

Investors like an expanding TAM – like Amazon’s flying wheel model.

Internationalization was the first step: 2012 Netflix had <5mn paid subscriptions (incl. Canada).

By the end of 2023 (in 11 years), Netflix has ~180mn paid members outside of US & Canada – a more than 36-fold increase.

Now, Netflix has pretty interesting upside in non-video streaming businesses: such as ads and gaming.

“It’s a $600B+ opportunity revenue market across pay TV, film, games and
branded advertising — and today Netflix accounts for only roughly 5% of that addressable market”

2023q4 Netflix letter to shareholders

3/ Shareholder return

2023Q1 buyback: $400mn

2023Q2 buyback: $645mn

2023Q3 buyback: $2.5bn

2023Q4 buyback: $2.5bn

Its capital allocation strategy:

The first priority for our cash is to reinvest in our core business
and to fund new opportunities like gaming and ads, followed by selective acquisitions;

Target maintaining minimum cash equivalent to roughly two months of revenue (e.g., about $5.4B based on Q1 revenue).

After meeting those needs, we anticipate returning cash to stockholders through share repurchases.

China’s GDP growth?

2023 China’ official GDP figure is growth 5.2% yoy, as reported today.

The caveat is that the growth is in RMB terms. However, due to RMB devaluation, GDP in USD terms is flat for 2 years.

2021 GDP in RMB: 114,923.7 bn

2023 GDP in RMB: 126,058.2 bn

2021 average FX: 1 USD = 6.4529 RMB

2023 average FX: 1 USD = 7.0742 RMB

2023 vs 2021 GDP in RMB terms grew by 9.7%, or 4.7% annually;

while RMB vs USD dropped by 9.6%, or 4.7% annually.

So GDP in USD terms is flattish for 2 years.

 

China’s birthrate 2023: record low

2023 China has 9.02 mn new born, a record low. Birth rate is 6.39‰ (per 1000 people).

In Japan, it is estimated to have 726,416 new borns in 2023, also a record low.

Strict covid control had negative impact on birth rate. And the remote working culture seems very different in Asia vs. say the US. There is almost no remote working in China. And I don’t think remote working in Japan is mainstream. Remote working seems to be very good to raise kids.

How did post-08 housing price perform in Manhattan?

How did average price change?

Average price per sqft for 2 bedrooms dropped ~17% in 2009 and ~4% in 2010.

Overall average price per sqft looks slightly down / rather flattish in 2010 across all types.

Difference across areas is huge – certain areas can continue to drop over 10% in 2010.

Source: https://www.millersamuel.com/files/2011/10/MMR10.pdf

How was median income level?

Median household income level in New York County (Manhattan) in 2010 was $63,188, dropping 7.5%.

Median household income level in New York State in 2010 was $49,780, slightly dropping.

A 118 sqm 2-bedroom home (or 1,270 sqft), with average price per sqft of $1,097, is equivalent to 22x a median Manhattan family’s annual income in 2010, or 28x a median NY state family’s annual income in 2010.

Monthly median income from a Manhattan household can buy 4.8 sqft, or 0.446 sqm, at average 2-bedroom price.

Source: Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MHINY36061A052NCEN

Source: Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MEHOINUSNYA646N

Another source for median household income is here, from nyc.gov: https://www.nyc.gov/assets/planning/download/pdf/data-maps/nyc-population/acs/house_income_nyc_boro_06_10.pdf

Tesla Bought $1.5 Billion Bitcoin

On Monday, Feb 8, Tesla announced it bough $1.5 billion bitcoin and would accept it as a payment method soon.

A few takeaways:

1/ There will be more companies using bitcoin to manage their cash, adding to the demand for it.

2/ Bitcoin as a payment method will be more mainstream. Now people not only can rely on selling it to the market, but maybe can buy a Model Y. The future question would be – what will the “economy” look like on Mars? I bet Bitcoin will be important.

Questions remain –

How Tesla is gonna price its cars? in fixed Bitcoin? that will cause a collision with USD, etc. as Bitcoin is volatile on a daily basis.

「What’s News In China」

HK’s Hang Seng Index will incorporate Chinese internet giants Alibaba, Xiaomi and Meituan Dianping – companies with dual-class or equivalent structures, starting from August, with a weighting cap of 5%. The tech trio are also eligible to join the Hang Seng China Enterprises Index. The Hang Seng is tracked by $20 billion of exchange-listed products globally and $8 billion of local retirement plans, the index provider said in a consultation paper in January. // FT | Hang Seng Indexes

On May 18, HeyTea 喜茶 announced the roll-out of its first artificial meat product, partnering with Starfield 星期零. The 未来肉芝士堡 is priced at ¥25. // 36kr | WeChat

Before HeyTea, its competitor Naixue’s Tea also partnered with Starfield on artificial meat burger last November. Last month, Starbucks and KFC in China launched their artificial / plant-based meat products. // Sina | 36kr

ByteDance is marching into automobile sector with plans to integrate Douyin and Toutiao into cars. The research and development (R&D) team for the Internet of Vehicles (IoV) team are former employees of smartphone maker Smartisan 锤子手机, who joined the company after ByteDance acquired Smartisan (team & patents) in early 2019. // 36kr | kr-asia

Chinese black-box doll retailer Pop Mart 泡泡玛特 has raised more than $100 million in funding from China Renaissance and Loyal Valley Capital in what is expected to be its last round before an IPO. // avcj | 36kr

「What’s News In China」

On April 17, China 2020 Q1 GDP data is released. China’s economy shrank 6.8% in the first three months of 2020 compared with a year earlier, the first such contraction since Beijing began reporting quarterly gross domestic product in 1992. // WSJ

On April 15, China cut the benchmark interest rate for the second time this year, lowering the medium-term lending facility (MLF) for financial institutions to 2.95%. The one-year loan prime rate (LPR), based on banks quotations, was lowered by 20 basis points (bps) from 4.05% to 3.85%. // Reuters | PBOC

China’s central bank has introduced a homegrown digital currency across four cities as part of a pilot program. Internal tests of the digital currency are being conducted in four large cities around China—Shenzhen, Suzhou, Chengdu and Xiong’an, a satellite city of Beijing. // WSJ

As China is reopening its economy, getting consumers to spend is one of the key initiatives. Many cities collaborate with Alipay to give residents discount coupons for various needs. Wuhan, which reopened on April 8, on April 17 announced that it is going to offer coupons worth of 2.3 billion RMB for restaurant, shopping malls, grocery stores and other cultural/sports spendings. // cnbeta