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The entire stock market feels like its in a bubble. Netflix stock gained more than 25% in the past one month. Their free cash flow (FCF) has been negative ever

• spyspy 9y ago
  > Netflix however produces no material return for investors Speak for yourself. My brokerage account looks much greener since I bought it.
• icedchai 9y ago
  Buy high, sell higher. Some stocks trade purely on growth and momentum.
• samfisher83 9y ago
  I don't know why you are being downvoted. At some point you have to generate cash to justify your valuation. However if you look at amazon they have never generated cash relative to their valuation and its been like 20 something years. It has returned 10x in the last 10 years so I don't think their investors are complaining. If you look at google, facebook, and apple they are generating cash that would justify their valuations.
  • paulcole 9y ago
    > if you look at amazon they have never generated cash relative Isn't this one of those big Amazon myths? I thought the truth was that the income has always been there but it's the constant reinvestment that has kept profits low?
    • appleiigs 9y ago
      That's how people justify investing in Amazon. But I don't know how they think Amazon can just stop reinvesting one day and make money. Every business line Amazon has is hyper competitive. Can Amazon actually raise prices in any of their businesses?
      • icelancer 9y ago
        >> Every business line Amazon has is hyper competitive. Can Amazon actually raise prices in any of their businesses? They have been for some time. Prime memberships, AWS pricing, etc. The lines are "competitive" but Amazon is so far ahead in most that it doesn't matter.
        • apetresc 9y ago
          When was the last time AWS prices went up?
      • r-s 9y ago
        Worked in many AWS shops, I bet almost none of them switch to alternatives if the price rose 10%.
        • toomuchtodo 9y ago
          Aren’t their costs going up at least 25-30% because of Meltdown/Spectre mitigation performance penalties? Would they weather another 10-20% price hike on top of that?
          • eropple 9y ago
            25-30% is pretty pessimistic. Maybe on certain services, like a Redis box. On others, like your average web service, it probably won't move the needle much. I'd ballpark around 5%. And that's for people who weren't overprovisioned in the first place, which is most people.
  • take4 9y ago
    Amazon has had positive free cash flow every year since 2001. Netflix has had free cash flow of -$53 million, -$840 million, -$1.6 billion, and -$2 billion in the last 4 years respectively, and their debt has grown to $5 billion.
    • anilshanbhag 9y ago
      Exactly, Amazon also has lot of assets. They have logistics networks across multiple countries, warehouses, data centers, etc. May not be commensurate to their market cap but it does give them a solid moat.
      • jonknee 9y ago
        Netflix has a lot of assets as well, though they are not physical like Amazon's. Original content can be sold again and again for decades.
      • jedberg 9y ago
        Netflix has assets too. They own a whole bunch of original shows and movies. For comparison, The Big Bang Theory has been worth a couple billion to CBS just in syndication. They also have a worldwide CDN capable of delivering high definition video around the world. And lastly, they have 20 years of movie viewing history. Their prediction models alone are probably worth many billions to the movie studios.
        • bwilliams18 9y ago
          Their original shows and movies depreciate far faster than most other assets and do so much more unpredictably than most assets. That 39M non-cash charge was almost certainly because of an unexpected depreciation of House of Cards post Kevin Spacey.
        • azemetre 9y ago
          Netflix doesn't even own a studio, they pay others to produce their content. They don't syndicate their shows, they don't sell much merchandise, and they don't sell their "prediction models" or user data. Don't get me wrong, Netflix does a lot of things right but the way they manage their entertainment divisions is extremely odd. We have over a 100 years of lessons from Hollywood and paying others to produce your content will always be more expensive than making your own.
  • jjeaff 9y ago
    Why would you ever need to generate cash flow? Just sell off a few of your ever appreciating shares each quarter.
• aphextron 9y ago
  I came here to say this as well. The entire market is in a feeding frenzy. Theres simply no way this can continue. I've made 10% returns this year on my whole-market mutual fund since Jan 1.
  • wolco 9y ago
    It's tough to go back to the stock market after bitcoin's daily 10% increase this fall. Might be wise to take 10% and invest in some coin.
    • RALaBarge 9y ago
      Lol, you can’t be serious. There is a very large difference between investing and speculation, and blockchain currencies are a supreme example of a pump and dump speculation scam.
      • wolco 9y ago
        Putting aside 10% towards high risk / high reward investments can help balance a portfolio. Stocks are less risky but still a gamble, bonds are safer depending on who is backing them.
• eldavido 9y ago
  A lot of sophisticated financial people share your thinking. The problem is there's no growth to be found anywhere. People are cheering for 3% GDP growth in the US. Interest rates are at all-time historical lows, meaning discount rates are lower than they've ever been. These macro trends have added up to an environment where people are willing to pay staggering premiums for even a remote shot at growth. It's affecting every asset class from real estate to public market equity to early-stage startups to commodities, and you aren't the only one who's worried about it (I am).
  • bufferoverflow 9y ago
    > The problem is there's no growth to be found anywhere. Cryptocurrencies and ICOs. Applied neural networks. Automation. Good electric cars. To the point where people are prepaying for something that might be built in a few years. Good cheap batteries.
    • aphextron 9y ago
      >Cryptocurrencies and ICOs. What value is being created here, exactly? There's plenty of idealistic notions being thrown around, but I've yet to see a single, real, useful product or service materialize >Applied neural networks. Same. >Automation. This is way too broad to be invested in. Of course the world is automating at a greater rate, but is this a cause for growth? Will automated factories produce more goods for the same consumers? >Good electric cars. To the point where people are prepaying for something that might be built in a few years. Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable >Good cheap batteries. Granted this one would be a technological revolution greater than the internet, but it's just a fantasy for now. I think the grandparent is dead on here. Real inflation is 10 times the official rate since the mid 2000s. We are all playing with funny money these days, and this won't end well.
      • adamclayman 9y ago
        > Again, how is this growth? People will simply replace their existing cars at a known rate with electric cars as they become available/affordable Since driverless vehicles and fleets are arriving roughly concurrent to electric vehicles, they're actually more likely to _reduce_ the volume of cars produced, after accounting for any increased, accelerated "fleet churn" buyers exert via aggregate demand to reach a faster critical mass on increasingly or perfectly safe cars.
• jonknee 9y ago
  > It's as if there is this new way of valuing companies that is not based on DCF. Growth. Netflix is after a giant global market and investors would rather growth and investing in new content than a dividend. Yes, the stock has been on a tear, but they've also grown subscribers 25% YoY while also raising their prices. That's an impressive feat for a company already as large as Netflix.
• whoisjuan 9y ago
  Wall Street is now comfortable with the idea of very long-term tech investing and multiple consecutive years of no profit generation... This is what Amazon has been doing for 20 years. People don't buy Netflix stock because they think it's gonna be profitable tomorrow, but rather because they expect it to be so dominant that when they start generating profits, they would be massive.
  • jjeaff 9y ago
    Amazon is generating plenty of profit for investors. And the best kind of profit too, capital gains. Why pay out dividends to your investors with after tax money that will be taxed again at a higher rate when you can just stash it overseas and buy more capital assets and let the stock grow in perpetuity. Same with apple. As an investor, you don't need dividends, you just sell a few shares each quarter.
    • kgwgk 9y ago
      Apple does pay a dividend. And gives even more money to shareholders in the form of buybacks. The total shareholder yield (dividends plus buybacks, divided by market cap) looks quite different for Amazon and Apple: https://advisortools.zacks.com/Research/Stocks/AAPL/Shareholder-Yield https://advisortools.zacks.com/Research/Stocks/AAPL/Sharehol... https://advisortools.zacks.com/Research/Stocks/AMZN/Shareholder-Yield https://advisortools.zacks.com/Research/Stocks/AMZN/Sharehol...
      • jjeaff 9y ago
        That's only recent. Post Jobs.
• ChuckMcM 9y ago
  Much of Netflix's valuation seems to be based on their ability to own the gate between people and all of Hollywood. That puts them in a position to take profits away from the people like Murdoch and bank it. The dirty tricks that the studios play on theatres don't work on Netflix or Amazon prime.
• mortehu 9y ago
  The 12 month forward earnings yield of S&P 500 was 5.4% as of last Friday, with a minority of analysts having updated their earnings estimate to incorporate recent tax rate changes. That yield means there's still an equity premium, even if earnings stay flat after 2018.
• logicallee 9y ago
  >Stocks trade based on discounted cash flow(DCF) You forgot the part where quantum mechanics higgs boson yada yada long story short efficient market.
  • logicallee 9y ago
    People didn't understand my comment. Parent had written "Stocks trade based on discounted cash flow(DCF): while giving ample evidence to the contrary. So they should have bolstered their absurd claim with reference to another magical fact, the efficient market. Which ensures stocks trade at DCF.
• WalterBright 9y ago
  I figure the Trump corporate tax cuts are good for about 20% growth in the stock market. (35% to 21% means that profits after taxes jumps about 20% even if nothing else changes. This means the value of the company goes up 20%.) Of course, the market has gone up much more than that.
• mathattack 9y ago
  They're trading at 12X revenue. That's not so outlandish for a firm that nobody unsubscribes from, and that can raise prices without taking a revenue hit. (If they raise prices 15% a year for 5 years, that puts them at 6X revenue, and they're stickier than a lot of SaaS companies) But what do I know? I thought Facebook was overvalued at $30 billion.
• puranjay 9y ago
  Everything feels like a bubble to me, from property prices to crypto. I'm doing fairly well in my career but I'll have to earn literally 3x my current income to afford the mortgage on a decent apartment in my area. Something feels very wrong about all of this
• sytelus 9y ago
  How do you reconcile with the fact that P/E ratio is still just 56. In 2000, just before the dotcom bubble burst, Nasdaq stocks traded at a staggering price-earnings ratio of 175. Also, Netflix revenues have been growing at staggering rate too: https://ycharts.com/companies/NFLX/revenues https://ycharts.com/companies/NFLX/revenues. Remember market responds to change in revenue over time, not the absolute value of revenue. I think it wouldn't be fair to say that stock prices are completely out of sync with revenue growth.
• nicky0 9y ago
  Do stocks really trade based on DCF? That sounds like a fiction taught in schools. I thought in the real world they traded based on whatever the hell criteria the people trading them felt like.
  • relix 9y ago
    They definitely don't trade based on DCF, and just one look at the stock market confirms this. DCF is just one method to put a valuation on a company. There are plenty other ways. The parameters chosen allow enough freedom to basically come up with any valuation you want anyway, so there's definitely no one "correct valuation" even if restricted to DCF.
• jacksproit 9y ago
  I think that it’s important to keep in mind that posts consisting of feelings like these can be described as memetic. Posting opinions like this can be a way for nations to try and influence the independent actors that make up other nations. Economic or political attacks can occur with fake news type meme opinion spreading.
• aagha 9y ago
  I find it unnerving that more traditional businesses are still valued on DCF, whereas it seems that if you become a tech giant, than you can get around it by saying: We're the 800 pound gorilla in this market and we're going to gobble it up. Don't worry about our cash situation. Both NFLX and AMZN fit this bill.