3. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 106
Netflix, Inc. (NASDAQ:NFLX) is a California-based entertainment services and original production company. Michael Pachter from Wedbush Securities stated on October 16 that despite the solid business fundamentals of Netflix, Inc. (NASDAQ:NFLX), the stock is trading at 9-times its revenue, whereas his targets are about 5-times the revenue. He does not believe that Netflix, Inc. (NASDAQ:NFLX) is a worthless stock, but simply stated that the shares are overvalued, since the audience will never convert fully to streaming, so the company cannot entirely dominate the sector.
On January 20, Netflix, Inc. (NASDAQ:NFLX) reported earnings for the fourth quarter, posting an EPS of $1.33, beating estimates by $0.51. The company’s revenue for the period totaled $7.71 billion, up 16% year-over-year, outperforming estimates by $2.24 million.
Citi analyst Jason Bazinet upgraded Netflix, Inc. (NASDAQ:NFLX) on January 31 to Buy from Neutral with a price target of $450, down from $595. Subscriber-based stocks have come under significant pressure and the equity returns now lag the S&P 500 Index since January 2020, the analyst tells investors in a research note. However, his enterprise value per subscriber analysis suggests prevailing equity values don’t assume material sub growth or improving subscriber economics beyond 2023. He believes Netflix, Inc. (NASDAQ:NFLX) has “ample pricing power.”
According to the Q3 database of Insider Monkey, 106 hedge funds held long positions in Netflix, Inc. (NASDAQ:NFLX), down from 113 funds in the quarter earlier. Fisher Asset Management held a $2.5 billion stake in Netflix, Inc. (NASDAQ:NFLX) in the third quarter.
Here is what Rowan Street Capital has to say about Netflix, Inc. (NASDAQ:NFLX) in its Q4 2021 investor letter:
“It’s always good to remind ourselves of what we are trying to really do here in the first place?
As we constantly repeat this in almost all annual letters, our goal from day one was to compound our investor’s capital at double-digit returns over the long run.
Now, everyone loves outsized returns. We could compare a strong track record of long-term returns to a fit body. Both need a lot of patience, discipline and both require you to “pay the price.” The reality is that the majority of people lack patience, lack discipline and are just not willing to “pay the price.” We all know what paying the price in fitness really means, but let’s take a look at what that means in investing.
Let’s look at an example of Netflix stock performance since 2010 and compare that to the S&P 500 index. As you can tell from the chart below, the difference over the past 12 years has been absolutely staggering and leaves anyone salivating over these kinds of returns (6,981% for NFLX vs. 312% for the S&P 500).
(Click here to see the charts)
With that, now let’s take a look at the “Cost of Admission” in order to generate these kinds of returns. We want to show you the painful drawdowns over the same time period since 2010. Here, you had a couple of 80% drawdowns back in the 2011-2013 time period, a bunch of 40% drawdowns, and countless 20%+ drawdowns.
So, the question is how many people do you think actually were able to withstand the volatility of Netflix stock over the last 12 years, pay the price and hold it all the way through? During the investment period shown above, Netflix was up almost seventy-fold, and this volatility is the price you had to pay to get it. A lot of market participants are striving for these outsized returns, but just don’t want to pay that price. It seems too risky and they try to cling towards safety without realizing that this is the cost of admission for above average returns.
The good news is that at Rowan Street we do have the patience, the discipline and are very willing to ’pay the price’ in order to achieve the long-term results we have outlined. All that we ask of you, our Limited Partners, is to trust our process and to allow us to do what we do best — compound your hard-earned capital over time. If you can do that, our partnership will work like magic — we are confident in that! In addition, you should derive some comfort in that the majority of our net worth is invested in Rowan Street alongside you (we like to eat our own cooking). We want our partners’ financial fortunes to move in lockstep with ours.”
