Netflix: "Content, Variety, Quality"

From “Netflix: In The Right ZIP Code” (July 2022):

“Mr. Market is clearly concerned by this recent course of events; despite a nice pop for the stock in response to the Q2 results, NFLX is still down ~70% from its November 2021 highs. The question that matters most to me is what these recent results indicate about the long-term health of the business; is Netflix wilting in the face of heightened competition, or does it have some combination of factors that will enable the company to navigate through this current malaise while continuing to hold onto the leadership position that it has established in the global streaming / VOD business?”

When “In The Right ZIP Code” was published, Netflix had just posted a quarterly (sequential) net loss of nearly one million subscribers, led by weakness in UCAN. The business ultimately reported mid-single digit FY22 revenue growth, with margin compression driving a double digit decline in operating income. People often say price drives narrative, a statement I can appreciate in terms of the magnitude of stock price moves – but what it glosses over is that the narrative at a point in time, as was the case with Netflix in 2022, is rarely far removed from reality. Delineating between what is temporary and solvable, from what portends meaningful change, is critical.

In the case of Netflix, one important factor to consider was the impact the company’s near term struggles would ultimately have on the actions of its competitors; as I wrote at the time, those responses would significantly impact long-term developments within the global streaming business: