Netflix is now worth more than $100B

Netflix crossed a fun milestone today, crossing the $100 billion mark for its market cap as it once again surprised industry observers with better-than-expected growth in its subscribers.

We’ll get to the financial numbers in a minute but, as usual, the big story here is that it continues to wow Wall Street with impressive growth in its subscriber numbers. The company said it added more than 8 million new subscribers total after already setting pretty robust targets for the fourth quarter this year, giving it a healthy push as it crossed the $100 billion mark after the report came out this afternoon.

Here’s the rundown:

Netflix’s biggest challenge has been to aggressively invest in good original content that’s going to bring in new subscribers. While its shows may clean up at various awards shows like the Emmys, it still has to show that it can convert those awards into raw subscribers. But thanks to what appears to be continuing success with its original content like Stranger Things, as well other returning seasons for shows like The Crown, it’s been able to continue its staggering run.

While the company’s core financials actually came in roughly in line with what Wall Street was looking for (which is still important), Netflix’s subscriber numbers are usually the best indicator for the core health of the company. That recurring revenue stream — and its growth — is critical as it continues to very aggressively spend on new content. The company said its free cash flow will be between negative $3 billion and negative $4 billion, compared to negative $2 billion this year.

And that aggressive spend only seems to get more aggressive every time we hear from the company. Netflix is now saying that it expects to spend between $7.5 billion and $8 billion on content in 2018 — which is around in line with what it said in October when it said it would spend between $7 billion and $8 billion. It’s the same range, but tuning up that bottom end is still an important indicator.

Netflix shows picked up 20 Emmy awards last year, but just having a shiny object on a shelf isn’t something that’s going to indicate that the company is going to continue to grow at a healthy clip. In the face of an increasingly crowded market, Netflix has to demonstrate its ability to continue to offer lasting value for subscribers — especially as it continues to grow abroad. The company, of course, has plenty of benefits in terms of how it handles its shows when it makes them itself.

The company also has to make sure its brand also fits that narrative, as it now finds itself dealing with issues like having to cancel House of Cards — and that has a monetary impact as well. Netflix said it took a $39 million “non-cash charge in Q4 for unreleased content we’ve decided not to move forward with.” The company didn’t specify what content, but it’s dealt with some issues in the past several months that might necessitate the need to recalibrate its slate.

Netflix also tucked another newsy bit into the report: the addition of new board member Rodolphe Belmer, former CEO of Canal+. As the company continues to expand internationally, bringing on people with experience like Belmer of course makes sense.

Here’s the final slash line for the company’s report today:

  • Revenue: $3.29 billion, compared to $3.28 billion estimates from Wall Street
  • Earnings: 41 cents per share, in line with estimates from Wall Street
  • Q4 US subscriber additions: 1.98 million
  • Q4 International subscriber additions: 6.36 million
  • Q1 forecast US additions: 1.45 million
  • Q1 forecast international additions: 4.90 million

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A Manager of $42 Billion Fears Bubble in World’s Biggest Stocks

The world’s biggest companies could be hiding the biggest risks.

That’s because companies such as Inc. and Alibaba Group Holding Ltd are overvalued, according to Robert Naess, who manages about $42 billion in stocks at Nordea Bank AB, Scandinavia’s largest bank.

“I’m a bit worried about the valuation of these very popular companies,” Naess, portfolio manager, said in an interview in Oslo on Friday. “The big stocks have become more expensive. There’s danger of a bubble in them.”

Naess and his partner, Claus Vorm, quantitatively analyze thousands of companies, investing in those with the most stable earnings and avoiding expensive stocks, a strategy which has delivered a 10 percent return for the Global Stable Equity Fund this year. It has returned 12 percent on average in the past five years, beating 75 percent of its peers.

They prefer “boring” stocks, unlike the global behemoth technology companies that have led the global stock rally. Tech stocks sold off at the end of November, with the single worst day on record for the so-called FANG stocks. One of those stocks, Amazon, which has risen 55 percent this year, has a price-to-earnings ratio of 275 for 2017, compared with 18.2 on average for MSCI World Index.

“Long-term, 5-10 years, stocks that are expensively priced, such as Amazon, Tencent and Alibaba, will give a low return,” Naess, who also shuns Facebook, Inc., said. “I’m pretty certain that in the next 10 years the return on those will be lower than the market.”

The fund holds Apple Inc. and Alphabet Inc., which are “reasonably priced”. It has also bought a stake in Merck & Co., Inc. and increased in Amgen Inc., CVS Health Corporation and Walgreens Boots Alliance, Inc.

Naess sees about 12 percent upside for the global developed stock market in the next 12 months provided companies continue to deliver expected earnings growth.

“2018 looks OK,” he said. “Normally, I think the earnings estimates are too high. But I believe earnings estimate could be too low next year given earnings are so good this year.”

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    Chipotle Plummets After Storms, Hacker Attack Ravage Profit

    Chipotle Mexican Grill Inc. fell as much as 11 percent in late trading after recent hurricanes and a hacker attack hammered earnings last quarter, adding obstacles to the burrito chain’s elusive comeback.

    Profit amounted to 69 cents a share last quarter, net of expenses tied to the data-security breach earlier this year and hurricanes Harvey and Irma. Analysts had estimated about $1.63 a share, according to data compiled by Bloomberg.

    The results suggest that Chipotle’s turnaround effort remains slow going. The Denver-based company has been reeling since an E. coli outbreak struck in 2015, crushing its sales, profit and stock price. The chain had started to recover in the past year, but then a norovirus incident in Virginia — along with a video of mice at a Dallas location — sparked a fresh round of negative headlines.

    “There is a sense that Chipotle’s rebirth is running out of steam,” said Neil Saunders, managing director of GlobalData Retail. “There is no single reason for the slowdown; rather, a number of factors have conspired in making this a somber quarter for the company.”

    Chief Executive Officer Steve Ells acknowledged that the latest results weren’t what he hoped for, but he believes the company’s revival is still on course.

    “We’re embracing the things we need to reach our full potential,” Ells said in an interview. “From a structure standpoint — and a feeling internally — the teams are ready.”

    Investors may still need more convincing. Chipotle shares fell as low as $290 in extended trading. The stock had slipped 14 percent to $324.30 this year through Tuesday’s close.

    “There were a lot of unusual items in the quarter,” Chief Financial Officer Jack Hartung said. In addition to the breach and the storms, higher avocado prices hurt results. These aren’t recurring costs, he said.

    But even when ignoring Chipotle’s one-time setbacks, its numbers were a bit worse than analysts had projected. Same-store sales grew 1 percent, missing the 1.2 percent estimate. Total revenue came in at $1.13 billion, short of the $1.14 billion projection.

    The company expects same-store sales to gain 6.5 percent this year. That’s below the 7.2 percent estimate compiled by Consensus Metrix.

    One bright spot was the rollout of queso last quarter. Sales gained 4 percent after the item was added to menus nationwide in September, Hartung said.

    Chipotle executives have been banking on queso to help the chain regain its allure. On the previous earnings call in July, company officials mentioned the new product roughly two dozen times. The cheese dip is the centerpiece of Chipotle’s attempts to win back customers with advertising.

    The company has said that customers have requested queso for years. It’s typically made with processed cheese, but Chipotle created a recipe that was designed to meet its natural-food standards.

    Some customers have complained on social media that the consistency is grainy. The criticism led Chief Marketing Officer Mark Crumpacker to implore employees to ignore the outcry in a companywide memo last month.

    Chipotle suffered through five straight quarters of same-store sales declines in the aftermath of 2015’s E. coli outbreak. The company’s stock had hit an all-time high of $757.77 earlier that year, but it’s now lost more than half of its value.

    The data breach, meanwhile, struck Chipotle’s payment systems in the spring. The company warned investors about the problem in April and said in May that it had successfully removed malicious software from its systems.

    The restaurant chain also has been reining in its growth ambitions. It’s now looking to open slightly fewer locations this year than the low end of its previous range of 195 to 210. And management expects to add a smaller number of restaurants in 2018.

    “The company has lost quite a lot of the momentum it built over the past six months,” GlobalData Retail’s Saunders said.

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