Game of Content

“We know the deal. Facebook and YouTube have adverts and attract many more eyeballs. Netflix is paid for content. Netflix is at the early stages of a global revolution in content generation and content serving. Some of the older and more traditional (one-way) content providers have been unable to breach certain ceilings in subscriber numbers.”


To market to market to buy a fat pig Markets in Jozi, Thursday (a while back), closed marginally lower on the day. Financials and banks were the winners on the day, resources slipped around half a percent by the close. SA inc. got another lift, Shoprite and Woolies, as well as Tiger and FirstRand at the top of the leaderboards. Dollar weakness translated to Rand strength, meaning that Rand Hedges were going to be under pressure. Coupled with the weaker commodities complex, it was unsurprising that the likes of Glencore, South32, BHP Billiton and Richemont all lead the losers. Losers in share price, not as businesses, that is important sportslovers. Notwithstanding that, Sappi clocked a 12 month high.

The Rand has done more firming over the last few days, back to levels seen in early February. What is that about? I guess we will have to see what international flows are likely to look like in the coming months. 6 months is my best guess of the unintended consequences of a negative credit review. The finance minister has been talking long and hard about fiscal discipline and fiscal consolidation and wanting to stave off Moody’s from a downgrade to non-investment grade. The mood has looked gloomy to say the least. We shall see what transpires.


Stocks in New York, New York, have had two sessions since we signed off. Last evening, notwithstanding the geopolitical tensions that exist out there, stocks ramped up sharply. The Dow, the S&P 500 and the nerds of NASDAQ all rallied around nine-tenths of a percent. It was a broad based rally, industrials and financials leading the charge. We are pretty close to being in the middle of earnings season, this week and next week (and the one thereafter) will be huge. We have started already, there were the banks last week, which on balance were better than most people anticipated.

Wells Fargo reported last week, we will revert with those earnings review tomorrow. The stock reacted negatively, a bottom line beat versus a top line miss, the stock still looks cheap. Over the last five sessions the stock is down nearly 4 percent. Equally, YTD it is down over four percent, it has not been easy for the financials. The news that Berkshire, for regulatory reasons, reduced their holding in the company, also has put some heat on the stock price. In other words, Berkshire cannot own more than ten percent of a bank stock, as per regulations. We will review and revert.


Company corner

Netflix recorded numbers post the market close last evening, they are always presented in an orderly fashion via a shareholder letter from co-founder and CEO Reed Hastings – Q117 Letter to shareholders. For the time being the main metrics to focus on for the company will be the number of subscribers that they can continue to add, coupled with the most important thing for the subscribers, namely, content. Revenue growth of nearly 35 percent year-on-year, on net additions (of subscribers) of around 5 million (3.53 in their international business). Total subscribers (paying members) nearly reached 100 million, with a roughly even split between the US and their “international” business. Subscriber numbers were actually short of company and the Street consensus.

Content matters more than anything else in this business. At the end of the day, all the original content being generated is going to attract new and keep existing costumers. And that will mean spending heavily in order to keep up with all the traditional providers and then of course, those folks that may be newer entrants into this heavy streaming space. It is a constantly evolving space between new and existing platforms. Cord cutters are many. If you only need access to movies and series, then this is for you. If you desperately need to watch sport and love that (I do), then you need to find another way. Expect more streaming sports in the coming years, where people can pay per program viewed, either live or with a short delay. Sport, you have to, have to, watch live.

The earnings transcript is always a great place to find information about the business (you’ll have to sign up for the free service) – Netflix’s (NFLX) CEO Reed Hastings on Q1 2017 Results – Earnings Call Transcript. What Netflix can do, is always to partner with eager local content producers who want their content to have a global audience. I have watched some international movies with subtitles, the content is magnificent, it is just out there without big enough audiences. Of course the factor that keeps these countries with poor internet infrastructure away from the main drag is exactly that, bad internet speeds. As those improve, no doubt the ability to grow across emerging markets exists.

What is interesting is that Reed Hastings says that they have YouTube envy. He suggests that the company is at the early stages of internet movies, whilst YouTube and Facebook have a much larger audience. Except the content you watch on both of those channels is normally shared by people of a like mind (Facebook), or is a search function (YouTube). Netflix is served to you, and whilst the review process has changed recently (from 5 stars to thumbs up and thumbs down), it does take a little longer for the company to get the “mix” right. They experienced this first hand in Brazil, a massive market with a growing middle class.

We know the deal. Facebook and YouTube have adverts and attract many more eyeballs. Netflix is paid for content. Netflix is at the early stages of a global revolution in content generation and content serving. Some of the older and more traditional (one-way) content providers have been unable to breach certain ceilings in subscriber numbers. If you buy Netflix now (at nearly 150 Dollars a share, a 63 odd billion Dollar market cap), you are certainly buying the future. Revenues should continue to grow at a healthy click, earnings are not likely to exceed 3 Dollars this year. Which means that the stock actually looks cheaper than at any point. If you own them, keep them and definitely pay attention to who is generating content and what the consumer wants out there. Their original stuff is amazing (both reality, series and documentaries), and finally people are finding a young and fresh platform.


Linkfest, lap it up

I am sure that you have always wondered why company spend on advertising is so high, you cannot just make a sweeping statement of “oh, people will always drink XYZ”. The Visual Capitalist says this about customer loyalty – Here’s 5 Ways to Build Customer Loyalty, According to Science. One piece of research stands out there for me, 79 percent of customers would take their business to a competitor within a week of experiencing poor customer service.

This is amazing! This retailer is showing the power of AI – How Germany’s Otto uses artificial intelligence.

“The AI system has proved so reliable – it predicts with 90% accuracy what will be sold within 30 days-that Otto allows it automatically to purchase around 200,000 items a month”


“Overall, the surplus stock that Otto must hold has declined by a fifth. The new AI system has reduced product returns by more than 2m items a year.”


Talking of future technology impacting our present day lives, 3D printing parts is and will be huge for the aeronautical industry – 3D-printed titanium parts could save Boeing up to $3 million per plane


Home again, home again, jiggety-jog. Stocks have started lower here across the board, Resources stocks as a collective down around two percent for starters. Long4Life (the Joffe SPAC) is heading lower and finding a level, perhaps somewhere around the cash level is appropriate.

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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