Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Netflix Won the Streaming Wars Again
Transcript
- Lucas: So Bill Ackman is back in Netflix. Four years after he dumped it at a loss, his firm bought a stake again. And the headline is that he says Netflix has won the streaming wars. Luna: That's a big reversal. He was pretty loud about getting out in 2022, wasn't he? Lucas: Yeah, he sold around two hundred and twenty dollars a share, took a hit, and then spent the next few years talking about how the streaming business model was broken. Now he's back, and the stock is trading around five hundred and fifty. Luna: So what changed? I mean, besides the stock price. Lucas: The real answer is that Netflix's business fundamentally changed. The ad tier, the password-sharing crackdown, the push into live events — they've turned a growth-at-all-costs story into a cash-generating machine. And Ackman's a value guy at heart, so the new economics speak to him. Luna: It's interesting because you've got the broader tech selloff this week — Apple down three percent, Amazon down three percent — but Netflix is up. What's driving that divergence? Lucas: Part of it is that Netflix isn't really an AI trade. Investors have been rotating out of the mega-cap tech names that ran up on AI optimism — Microsoft, Alphabet, Amazon all down over the past five days. Meanwhile, Netflix is more of a consumer discretionary play with a strong brand and pricing power. That's a different bucket. Luna: So it's not just Ackman. The market is rewarding companies that can prove they can grow without burning cash. Lucas: Exactly. And Netflix has become one of the most profitable media companies on the planet. Their operating margin is north of twenty-five percent now, and they're generating serious free cash flow. That's the kind of numbers that get a value investor's attention. Luna: But Ackman was so public about his bearishness. How does he square that with coming back? Lucas: He's actually been pretty direct about it. He said he was wrong about the long-term trajectory. He underestimated the power of the ad tier and the durability of their subscriber base. And he's not alone — a lot of institutional investors have been coming back over the past year. Luna: So what does this mean for someone who's building a concentrated portfolio? Is Netflix a buy now? Lucas: That's the question. But I'd frame it differently. The lesson here is about changing your thesis when the facts change, not about chasing Ackman's moves. Netflix is a great example of a company that adapted its business model to a maturing market. Luna: Talk to me about that adaptation. The ad tier specifically — how big a deal is it? Lucas: It's huge. When they launched it in late 2022, they were basically saying, we've hit the ceiling on subscription prices, so we need another revenue stream. Now the ad tier has over seventy million active users globally. That's not just incremental — it's a whole new growth engine. Luna: And it changes their pricing power, right? Because they can keep raising prices on the ad-free tiers while still offering a cheaper option. Lucas: Right. They've got a spectrum now. You can pay ten bucks and see ads, or seventeen dollars for no ads, and they can keep nudging those numbers up over time. That's classic pricing power, and it's why their average revenue per user keeps climbing. Luna: So Ackman sees that and thinks, okay, this is a business that can compound for years. But what's the risk? What's the bear case now? Lucas: The bear case is competition and saturation. They've got Disney Plus, Max, Amazon Prime Video, and a ton of niche players all fighting for the same subscribers. And in mature markets like the US, growth is slowing. They're betting on international expansion and things like live sports to keep the momentum going. Luna: And the valuation? At five hundred and fifty a share, is it still cheap enough to be a value play? Lucas: It's not cheap in the traditional sense. The forward price to earnings ratio is around thirty-five, which is higher than the market average. But Ackman would argue that you're paying a premium for a business that can grow earnings at twenty percent for the next five years. That's a growth at a reasonable price argument, not a deep value one. Luna: So it's more about quality than value. But you mentioned the market's mood — the S&P 500 is up half a percent over the past week, but the Dow is down. What does that tell us? Lucas: It tells me the rotation is real. The Dow is heavy with industrials and financials, and those have been lagging. Meanwhile, the Nasdaq is basically flat. The market is being selective. And if you look at the five-day moves, energy is the standout — Chevron is up nearly six percent, Exxon almost four. Luna: That's a big move for those names. Is that just oil prices, or something more? Lucas: Oil prices are part of it, but it's also a rotation into cheaper sectors that have been ignored. The same way Ackman is looking at Netflix as a quality compounder, some investors are looking at Exxon and Chevron as steady cash generators with decent yields. It's a shift away from the mega-cap tech momentum trade. Luna: So how does a stock picker play this? Do you follow Ackman's move, or do you look for your own quality names? Lucas: I think the biggest mistake would be to copy Ackman just because he's famous. The right move is to understand what he sees — a company with a durable competitive advantage, growing cash flows, and a clear path to compound value — and then apply that lens to your own universe. There are plenty of other companies with those traits that haven't run up as much. Luna: But isn't that exactly what a concentrated portfolio is about? Finding a few names you understand deeply and betting big on them? Lucas: It is, and that's why Ackman's trade is a good case study. He's got a concentrated book, and when he finds something he believes in, he makes a meaningful bet. But he also had the humility to admit he was wrong. That's the part a lot of investors struggle with — cutting losses or admitting a thesis didn't work. Luna: Speaking of admitting when you're wrong, I've been thinking about our own show. We make a big deal about being ad-free, and I think that's part of what lets us be honest about these topics. Lucas: It is. We don't have to sell you anything, so we can just focus on helping you think through a decision differently. That's been the whole point from day one. Luna: And if that's been useful to you, you can support that choice at buy me a coffee dot com slash fexingo. It's the only way we keep the lights on. Lucas: Yeah, no pressure, but every little bit helps us keep doing this. Now, back to Netflix — there's another angle I want to dig into. Luna: What's that? Lucas: The way Ackman's entry is being interpreted by the wider market. When a high-profile investor like him puts his name on a stock, it often becomes a crowded trade. So even if his thesis is right, the stock might be pricing in a lot of good news already. Luna: So you're saying his announcement could be a short-term negative if everyone jumps in? Lucas: There's a risk of that. But the stock has already run up a lot this year — it's up about thirty percent year to date. So the market has partially anticipated the good news. The question is whether future earnings growth can justify the multiple. Luna: And what's your take? Are you buying the bull case? Lucas: I'm not saying it's a bad stock. It's a great company. But for my own portfolio, I'd rather wait for a pullback. Patience is a skill in this business, and it's okay to let a good company go if the price isn't right. Luna: That's a fair approach. So what are you watching for next? Lucas: I'm watching Netflix's earnings in October to see if the ad tier keeps growing at that pace. And I'm watching how the rotation plays out. If energy and financials keep gaining while tech stays flat, that could be a long-term shift, not just a six-week move. Luna: Good point. Let's leave it there for today.