It’s intermission time!

When a disruptor gets disrupted.

While happily flicking through the endless options on offer and contemplating the prospect of watching Better Call Saul, I got hit by the news. Netflix’s enterprise value collapsed by almost 35% during one of the most significant sell-off in the streaming giant’s history.

Management reported 200.000 fewer subscribers since last quarter, and to make things even worse; they presented a projection to lose 2 million more paying clients this quarter.

As the good old Champ Kind would say: “WHAMMY”!

Investors are running for the exit quicker than corn pops. It turns out that once Covid goes on vacation, people find better ways to invest their time than watching Emily in Paris.

So, let’s ask ourselves. Is this the end of streaming as we know it?

Netflix is a typical growth company, with an impressive ten-year average revenue growth of 24%. Operating margins are sitting at around 20%. EV of $109 billion. Inconsistent free cash flow and long history of overvaluation.

Recently, revenue growth has slowed down because of competition and multi-household sharing (I’m thinking of you, dad, start paying your subscription!).

The truth is that if a company is overpriced for growth, it must keep growing, or investors get into “Houston, we have a problem” mode. However, when Wall Street is spooked, it might be a good time to take a closer look.

Don’t get me wrong; Netflix has serious headwinds, including sluggish economic growth, increasing inflation, geopolitical events, and increasing competition. However, it is not all doom and gloom. Streaming is the future of content consumption.

Streaming has become the go-to medium for TV and movie consumption, particularly for millennials but across generations too. The transition from linear TV to streaming is still in its early stages and could represent a once-in-a-generation opportunity for investors. Moreover, including a lower-priced subscription tier with ads could be a vast stream of revenue growth.

Netflix is maturing into a profitable company, has a decent balance sheet and is working to be free cash flow positive. Management is strong and has previously shown the ability to pivot.

Overall, Netflix could be an exciting company to look at more in detail and possibly invest in at the right price.

If you don’t mind now, I’ll go back to watch Better call Saul.

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