Netflix Thrills


Market Scorecard

The chattering class, those with no skin in the game, are now talking about the coronavirus outbreak as a reason to sell stocks. Really? In their defence, globally stocks did hit a bit of a speed bump when Ebola broke out a few years ago. To sell stocks based on a handful of people getting sick seems very short sighted? If stocks do have a bit of a wobble, that will be great news for Vestact clients. It means that we can buy more shares at a lower price.

This morning Naspers released a SENS announcement saying that they are selling a small part of their stake in Prosus. The sale will reduce their share in Prosus to 72.5%, and they will probably raise around R22 billion. They will then use the money to buy back Naspers shares. Considering that Goldman Sachs estimates that Naspers trades at a 45% discount to NAV, this sounds like a good way to reduce that discount. The Prosus discount to NAV currently sits at 32%. So it makes sense to sell something that has a smaller discount, to buy something with a larger discount. Management hopes that this move shows their commitment to reducing the NAV discount. Which then spurs the market into action to minimise the NAV without further intervention needed from the management team.

Yesterday the JSE All-share closed down 1.49%, the S&P 500 closed down 0.27%, and the Nasdaq closed down 0.19%.

Company Corner


One thing, from Paul

Netflix issued its results after the closing bell in New York last night. At this time of year (aka. our summer) that’s only at 11pm. I was sitting up in my pyjamas, struggling to stay awake, anxious that I would only get a few hours of sleep before having to jump out of bed for my group run at 5am through Hillbrow and the Noord Street taxi rank.

The reason I won’t miss a Netflix earnings release in real-time is that this is a company with elevated growth expectations, and which is prone to wild post earnings release swings. Over the years I’ve seen after hours share price moves of up to 20%, in both directions. What fun! The banter on social media can be fun to watch too. Here’s me and ‘Bubble Boy’ comparing notes on Twitter ahead of the release:

Anyway, the numbers were fine. They delivered a revenue, subscriber growth and earnings beat, but CEO Reed Hastings pointed to a slightly softer first quarter of 2020 forecast than expected. The company is still spending money like crazy on new content, but the reviews have been very good. There is something there for everyone. The stock only rose 2.3% after hours, up to $345.75. Aw boring! Bubble Boy and I were both wrong.

I know that some people are worrying about Netflix having too much competition now, especially from Disney Plus. My view, which many of you have heard before, is that humankind is heading for a future where we all only work four days a week, and we will need to fill up our leisure hours with more media consumption. So there is plenty of room for multiple operators.

I made a forecast (thumb suck) that one day Netflix will have a billion customers, each paying them $50 a month. Imagine their scale and profitability then! For the record, they currently have 166.2 million paying subscribers, and they charge subscribers between $9.99 and $16.99 per month depending on the package.

Netflix should be in your portfolio. Send some money to your New York account and we will buy you some. If you think that Disney has a good offering, you can buy some of those shares too.

Our 10c Worth


Byron’s Beats

Apple have stepped it up a notch in the race for content. They have just signed former HBO boss Richard Plepler as a producer for Apple TV Plus for five years. Plepler spent 27 years at HBO which won 160 Emmys while he was in charge.

His company called Eden Productions will make series, documentaries and feature films exclusively for Apple. I am sure, with Apple’s budget and Plepler’s skill, they will churn out some quality content. If only we all had the time to watch all the good stuff out there!

Here is an article form the New York Times covering the topic.


Michael’s Musings

Interest rates and central banks are always a hot topic in investing circles. Going further than investing, interest rates have some very real impacts on our lives. A reader pointed out to me last week, that for those in retirement, a rate cut from the SARB has a significant negative impact on their monthly income.

The article below has some fascinating research showing the trend of interest rates going back to the 1300s. The overall trend is for a lowering rate as time goes on. This makes sense, thanks to society changes and increased technology, risk levels have been going down. Less risk, means that you get less return. What was very interesting to me is that it is fairly normal for parts of society to have negative interest rates.

This research implies that it is not out of place to have the current low interest rates we are experiencing. It also means the ‘return to normal rates’ that some people are forecasting, might never happen.

What does that mean for you? In general terms, low interest rates means higher asset prices. It means that markets will trade at higher P/E ratios. It also means that housing prices will go up. That means continuing to buy assets is a good long term strategy.

You can read more here – What interest rates dating back to 1311 tell us about today’s global economy.


Bright’s Banter

Tencent announced that it is working on their own TikTok killer. TikTok is a video-sharing app owned by China’s ByteDance. The app allows you to create short-form videos with music in the background, and then you can share it with your friends on the app or on all other social media.

TikTok already has amassed over a billion monthly active users, and has become the most valuable tech startup in the shortest period of time for any app; and now Tencent wants a piece of the action. This makes sense as there is no competition for TikTok since ByteDance merged TikTok with, uniting teens from the West and the far East.

The big advantage that Tencent has is the fact that it already has over 1 billion monthly active users on WeChat, and it is a matter of integrating the short-form video-sharing functionality into the app. You can already use your WeChat to do basically everything from booking a table at a restaurant, chat to your friends, paying for your meal, pay for your municipal bills etc.

If Tencent manages to unlock this short-form video sharing business, it could potentially increase WeChat’s engagement statistics which are already super impressive. Western teens spend an average of 9 hours a day in front of screens, of which just over a third of that is on Instagram. In the East it’s about two thirds of that spent on WeChat.

If there’s a company to take on TikTok head-to-head in the short-form video sharing arms race, my money is on Tencent.

Linkfest, Lap it up

This building material is still in testing. One of the benefits of using bacteria to create hard building materials is that it could be used to take CO2 out of the atmosphere once the structure is built – These living bricks use bacteria to build themselves.

Here are interesting graphs showing where the big tech companies make their money – How the Tech Giants Make Their Billions.

Signing off

At 10:00 Stats SA will release our inflation figure for December. The expectation is for an inflation read of 4%, to the low end of the SARB’s target range. Then before the US market opens, Johnson and Johnson reports their latest numbers. The JSE All-share is higher this morning, with a nice jump in the Naspers share price.

Sent to you by Team Vestact.

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