Weekend Investor: The Week That Was

I hope you had a wonderful week!

Earnings season is in full swing and I’ll get to some early thoughts below. At Asymmetric Investing, I will publish one free article during the week, an earnings preview for every spotlight company for premium subscribers, plus a free weekend article next week.

If you are in the Washington D.C. area, I am hosting an event with some brilliant investing minds on August 18. As a bonus, everyone who signs up gets 3 months of Asymmetric Investing premium, so check it out.

In case you missed it

Here’s some of the content I put out this week. Enjoy!

• Disney is Dead — Long Live Disney: Disney seems lost in a lot of ways but there may be a method to the madness for CEO Bob Iger. I laid out how this could be a dominant streaming and sports brand in this article.

• Airbnb Spotlight: The Asymmetric Universe expanded this week when Airbnb was added. It’s a fabulous company, but a stock I’m hesitant to buy based on valuation. This could be a great stock to pick up on a market pullback.

• AI Bubble Popping: Traffic to ChatGPT is down and results are getting worse. Maybe the AI bubble is popping? On the flip side, next week I will be covering how Meta’s open sourcing of its model could upend the AI landscape forever.

Netflix Pricing Power

The digital pages of Asymmetric Investing are filled with concepts that Netflix leans into. Internet Economics and the Smiling Curve are two where the streaming giant shows its power. What these concepts don’t cover is how far a company can push its pricing and margins. Despite all of its strategic brilliance, it appears Netflix is meeting resistance on the pricing side.

In the second quarter, global subscriptions were up 8%, but to get there the company is reducing prices. U.S. and Canada were the one bright spot where subscription prices were up a whopping $0.05 to $16.00. But EMEA was down 3% to $10.87, LATAM declined 1% to $8.58, and APAC dropped 13% to $7.66 per subscriber.

After years of slowly raising prices, there’s clearly a limit to how much consumers will pay for Netflix and I only see a few options to fix the problem:

• Advertising: Revenue could be augmented with advertising. Netflix has done this on the lower end with ads, but it’s not clear if the erosion of the experience and the brand would be a net positive if Netflix pushes advertising too far.

• Tentpole Content: Netflix has its share of hits, but they aren’t exactly tentpoles to build a brand around (the Disney/HBO strategy). The most popular shows were Squid Game, Wednesday, Stranger Things 4, and Monster: The Jeffrey Dahmer Story. Some of these shows are compelling, but they’re not a great reason to sign up for Netflix and they’re not the kind of content that gives pricing power or prevents churn. Netflix hasn’t been successful in building its own tentpoles ( like Game of Thrones, Marvel, etc), so there’s no easy path to being the HBO of streaming without a very different content strategy.

• Sports: The one way Netflix could command $30-$40 per month for its service is by including sports in the package. On the pricing side, ESPN and regional sports networks were always the drivers of pricing power for cable companies and network owners, so it’s logical a sports tier would add value. Partners should be interested because Netflix is in 238 million households worldwide and it’s the biggest single distribution funnel for any sport. Ailing sports like the MLB and NHL need that kind of distribution now that cable is dying. But this would need to be a big swing. One sport isn’t enough, Netflix needs a critical mass. They need something like MLS and F1 and the Premier League. The problem is, those rights belong to Apple, ESPN, and NBC respectively.

  • On a side note, Iger said last week he wants to “partner” to make ESPN the sports streaming giant. See more on this in my Disney article.

Netflix is a wonderful company and has upended traditional media with streaming. But it doesn’t own media the way that Google has a monopoly on search or Microsoft had a monopoly on PC operating systems. That’s making it hard to raise prices and ultimately puts a cap on the company’s profitability…for now.

Tesla and FSD

I will spill enough digital words about my analysis of Tesla’s earnings report on my YouTube channel, but I want to highlight some interesting revelations about Tesla’s autonomous driving here because it relates to one of my highest conviction stocks in the Asymmetric Universe.

This is what Elon Musk said about FSD in the Q2 2023 conference call:

This flies in the face of the “data” Tesla has provided previously. The chart below is an extremely flawed chart (lots of bias in where Autopilot is used and Tesla self-reporting accident data) that implies that FSD is already safer than the average human. And this chart is two years old.

Here are some autonomous driving facts about Cruise and Tesla from California, where data is most readily available.

• Cruise drove 863,111 autonomous miles in the state of California in 2022 and had a disengagement (when a human had to take over for the autonomous system) just 9 times. That’s once every 95,901 miles.

  • Cruise drove 546,492 miles fully autonomously with NO safety driver and had zero disengagements.

• Tesla had zero miles driven autonomously, safety driver or not, in the state of California. ZERO.

Now we know that nine years after Autopilot was launched, Tesla isn’t even testing fully autonomous driving and its current driver-assist program isn’t as safe as humans.

Let’s just say, I’m comfortable with my allocation of Cruise (through General Motors) in the Asymmetric Portfolio.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.