5 ms·

What has gone wrong with our world that making a 6 billion dollar a year profit is considered a problem? Because it is a problem. Firstly, it's a problem beca

What has gone wrong with our world that making a 6 billion dollar a year profit is considered a problem? Because it is a problem. Firstly, it's a problem because stock prices are a measure of predicted future value. The profit today is mostly irrelevant. In order to make a profit on shares the business has to be in a position to do better in the future. If it doesn't then people won't believe it'll do better even farther in to the future, so they won't bid more for the shares than they're worth today. That means investors can't make a profit. If you bought Netflix shares in the past you'll lose money. That's a problem. Secondly, and in my opinion more importantly, Netflix (and every other tech unicorn) use their shares as a hiring incentive. If the shares are going the wrong way then good hires will refuse offers and go elsewhere. A big chunk of renumeration in tech is predicated on people getting stock instead of cash because that's worth more to the individual and cheaper for the business. If that fails then the business has to start dipping in to that $6bn profit to replace people who leave, or to acquire businesses, or just to maintain the status quo. It isn't hard to imagine a scenario where a $6bn profit turns into a loss within a decade or less. The driving force behind people saying Netflix has a problem is that they're predicting that the future of the company isn't good. I mean, they might be wrong and Netflix might be fine, and ultimately even if things go badly Netflix is never going to "fail" because it'll get bought long before that happens, but if you hold Netflix stock it's entirely reasonable to be worried despite the healthy profit they make.

loudmax 5y ago
What's supposed to happen is that profitable companies start paying dividends to their shareholders. If you're getting dividends, then you don't mind if the value of your shares is staying flat or even dropping a little. The original purpose of owning shares in a company wasn't only that the value of the shares themselves would increase, but that they'd pay dividends so shareholders can make a profit over the life of a company. As far as I know, Netflix shares, much like shares in many other tech companies, do not pay any dividend. Perhaps it's time they begin.
- lotsofpulp 5y ago
  > The original purpose of owning shares in a company wasn't only that the value of the shares themselves would increase, but that they'd pay dividends so shareholders can make a profit over the life of a company. I do not want dividends if I think the business can invest the money with a higher probability of better ROI than I can. If shareholders want dividends, they can vote for them.
  - mcphage 5y ago
    > I do not want dividends if I think the business can invest the money with a higher probability of better ROI than I can. A better ROI to whom—itself, or to you? Do you own Netflix stock to make money for yourself, or for Netflix to make money for itself?
    - lotsofpulp 5y ago
      To me, of course. But Netflix earning more money for itself is the same as Netflix stock price increasing is the same as the Netflix’s owner’s ROI.
      - mcphage 5y ago
        Clearly not the same, since a dividend would increase your ROI, but is not Netflix earning more money for itself.
        lotsofpulp 5y ago
        For a liquid asset, ROI should be the same (excluding taxes) either with or without dividend: https://www.investopedia.com/articles/stocks/07/ex_dividend.asp https://www.investopedia.com/articles/stocks/07/ex_dividend.... With a dividend, you have to pay taxes now. Without the dividend, the stock price remains higher so you sit on higher unrealized gains. But assuming you can sell it anytime (it is liquid), the ROI is still there without the dividend.
  - 5y ago
cercatrova 5y ago
Netflix does not pay in shares, they pay in all cash as their job compensation.
- efficax 5y ago
  Last I knew, they offered you the choice of all cash or using whatever % of your salary to buy options, including 100% options.
  - cercatrova 5y ago
    Interesting, must be somewhat recent of a change. I wonder how those people who took the 100% options deal are feeling right now.
  - myvoiceismypass 5y ago
    As of a few years ago, they paid all cash, gave you an additional 5% of your salary in options, and you could purchase more options if you want. I don't believe they allow 100% allocation any more (but they once did, feel like that ended around 2015 or so)
ncallaway 5y ago
> That means investors can't make a profit. That's not quite true. It means investors can't plan to make a profit by selling future shares based on the price growth beating inflation. But...investors can still make a profit from dividends. There are plenty of large companies that are much less growth focused, and much more dividend focused.

loudmax 5y ago

What's supposed to happen is that profitable companies start paying dividends to their shareholders. If you're getting dividends, then you don't mind if the value of your shares is staying flat or even dropping a little. The original purpose of owning shares in a company wasn't only that the value of the shares themselves would increase, but that they'd pay dividends so shareholders can make a profit over the life of a company. As far as I know, Netflix shares, much like shares in many other tech companies, do not pay any dividend. Perhaps it's time they begin.

lotsofpulp 5y ago
> The original purpose of owning shares in a company wasn't only that the value of the shares themselves would increase, but that they'd pay dividends so shareholders can make a profit over the life of a company. I do not want dividends if I think the business can invest the money with a higher probability of better ROI than I can. If shareholders want dividends, they can vote for them.
- mcphage 5y ago
  > I do not want dividends if I think the business can invest the money with a higher probability of better ROI than I can. A better ROI to whom—itself, or to you? Do you own Netflix stock to make money for yourself, or for Netflix to make money for itself?
  - lotsofpulp 5y ago
    To me, of course. But Netflix earning more money for itself is the same as Netflix stock price increasing is the same as the Netflix’s owner’s ROI.
    - mcphage 5y ago
      Clearly not the same, since a dividend would increase your ROI, but is not Netflix earning more money for itself.
      - lotsofpulp 5y ago
        For a liquid asset, ROI should be the same (excluding taxes) either with or without dividend: https://www.investopedia.com/articles/stocks/07/ex_dividend.asp https://www.investopedia.com/articles/stocks/07/ex_dividend.... With a dividend, you have to pay taxes now. Without the dividend, the stock price remains higher so you sit on higher unrealized gains. But assuming you can sell it anytime (it is liquid), the ROI is still there without the dividend.
- 5y ago

cercatrova 5y ago

Netflix does not pay in shares, they pay in all cash as their job compensation.

efficax 5y ago
Last I knew, they offered you the choice of all cash or using whatever % of your salary to buy options, including 100% options.
- cercatrova 5y ago
  Interesting, must be somewhat recent of a change. I wonder how those people who took the 100% options deal are feeling right now.
- myvoiceismypass 5y ago
  As of a few years ago, they paid all cash, gave you an additional 5% of your salary in options, and you could purchase more options if you want. I don't believe they allow 100% allocation any more (but they once did, feel like that ended around 2015 or so)

ncallaway 5y ago

> That means investors can't make a profit. That's not quite true. It means investors can't plan to make a profit by selling future shares based on the price growth beating inflation. But...investors can still make a profit from dividends. There are plenty of large companies that are much less growth focused, and much more dividend focused.