AMZN

Netflix: The Painful Slowdown Begins

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By Brian Nelson, CFA We’re not going to say much about Netflix’s (NFLX) quarterly “miss” other than adding 1.7 million members, as it did during its second quarter 2016, wasn’t horrible. The media outlets and sell-side analysts will tell you that this came in below Netflix’s 2.5 million net new member forecast and below the 3.3 million net-add mark in the prior-year. This is no surprise to the Valuentum readership. We had been expecting significant weakness at Netflix. The stock is ~15% lower in after-hours trading. What to do now? Well, the air is slowing coming out of the Netflix bubble. The market is slowly realizing that growth in the US is grinding to a halt. On a trailing 12-month … Read more

Apple’s iPhone Update Cycle and the Netflix Rumor

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By Brian Nelson, CFA Have we finally reached the limits when it comes to enhancing the functionality of the smartphone? Many are speculating this to be true, if Apple’s (AAPL) decision to now “take three years between full-model changes of its iPhone devices, a year longer than the current cycle,” is true, as reported by the Nikkei Asian Review May 31. The report comes a mere month after Apple’s first-quarter internal unit sales metrics left much to be desired, “Apple: Nowhere To Run, Nowhere To Hide (April 2016),” where unit sales of the iPhone dropped 16% and where iPad performance was even worse. A logical read-through from the news of a more prolonged update cycle may be that the iPhone … Read more

Part III: Nelson’s Evaluation of Berkshire’s 2015 Annual Report

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<< Go back to Part I << Go back to Part II By Brian Nelson, CFA It’s always a wonder to open up on the Berkshire Hathaway (BRK.A, BRK.B) annual report for a large variety of different reasons, but every time I do I can’t help but ponder yesteryear through the table on page 2, “Berkshire’s Performance vs. the S&P 500.” I think I have a unique knack for imagining what might have been if today’s standards would have been applied to Berkshire in the 1970s, perhaps in some ways how many baseball fans may think about whether the legends of the past would have put up the type of numbers that they did if presented with today’s dynamics. For … Read more

Target and Non-GAAP Earnings

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Image Source: Mike Mozart Another day of earnings — another bad day for retail. May 18 brought a disappointing first-quarter report from retail bellwether Target (TGT) that sent the prices of it and most of its big box brethren including WalMart (WMT), Best Buy (BBY), and hhgregg (HGG) lower on the session, the latter two lower due to weakness in Target’s electronics vertical during the period. We’re reiterating our $71 per share fair value estimate of Target at the time of this writing. Except perhaps home improvement retailers Lowe’s (LOW) and Home Depot (HD), which continue to post desirable comparable store sales increases (+7.3% and +6.5% in the first quarter, respectively), and arguably the auto retailers, including AutoZone (AZO) and … Read more

ETE Down 70%; IBM Poor Quality, Netflix Begins to Implode

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Shown above: Energy Transfer Equity’s recent share price performance. A lot of investors depend on us for our energy research. We’ve been busy publishing on the website, and we can’t possibly send out all of our research via email, so please come visit. Many are aware of our take in any case: the energy master limited partnership (AMLP, AMZ) isn’t going away tomorrow, but it may not last over the long haul. This is nothing new. We’ve been saying this since the peak in energy MLP share prices, which just so happened to coincide with Energy Transfer Equity’s (ETE) heights in the mid-$30s. Our readers understand that we’re taking the long view with MLPs when we talk about business models … Read more

Netflix’s “Moat” Eroding; Energy Transfer Equity’s Blunder Continues

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By Brian Nelson, CFA You won’t see us holding Netflix (NFLX) or Energy Transfer Equity (ETE) in the newsletter portfolios anytime soon, and recent news only supports that viewpoint. We talk about companies not included in the newsletter portfolios as part of their ongoing research and valuation coverage on our website. I must say that as a recent subscriber to Netflix, some of their movie suggestions sent via email haven’t been all that bad – their algorithm must have me figured out. As a logical thinker, and not one swayed by spontaneous gratification, it’s still hard to forget the shortcomings of their content library, in aggregate, however, “5 Reasons Why We Think Netflix’s Shares Will Collapse.” Even if we were to … Read more

Target’s E-Commerce Growth the Real Story

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Image: Target’s mascot Bullseye sporting new shades at a local job fair. We have a difficult time dismissing Target’s (TGT) short-sightedness in abandoning its efforts in Canada, as in time, its ability to continue to drive traffic and store count in the US higher will plateau. In no way will this occur anytime soon, or within the next few years or so, but it will, and Target will have wished it wouldn’t have given up in Canada. But that’s not the story today Skeptics are looking wrong in a big way, as Target showcased a pace of e-commerce expansion better than that of Wal-Mart (WMT) and even Amazon (AMZN) and eBay (EBAY) in its most recently-reported fourth quarter. Digital sales … Read more

Netflix Shareholders Need to Get Real?

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By Brian Nelson, CFA “Netflix is valued as if it will have the economics of three US operations, without having to pay at all for the next two…” We have no problems with investors playing with “fire” if they know that they are and don’t mind losing their shirts, but we posit that, given the popularity of the acronym, FANG, which stands for Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google, now Alphabet (GOOG, GOOGL), many unsuspecting investors have been lured into Netflix believing these four companies share similar qualities. They absolutely 100% do not. On one hand, Facebook, Amazon, and Alphabet have incredibly strong balance sheets and generate copious amounts of free cash flow, as measured by cash flow … Read more

We Like the News! Buffett Scoops Up Kinder Morgan; FVE: $20

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It looks like crude oil (USO) overproduction will continue. Dashing hopes that any rational behavior would prevail in the energy resource markets, member nations of OPEC February 16 said not that they would cut output but that they would not increase crude-oil output any further, as if the current pace of production isn’t already drowning the world in the black liquid. It turns out the rumor from last week had some basis to it, “Your Hard-Earned Money,” but it didn’t have much substance, in our view, especially since the deal hinges on cooperation from Iran, which remains dedicated to increased production to reach pre-sanction levels. We’re not reading much into the news, as Saudi Arabia, while included in the parties … Read more

Alert: 5 Reasons Why We Think Netflix’s Shares Will Collapse

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Pictured: The “black space” a Netflix user encounters after searching for movies that include one of Hollywood’s biggest superstars, Jennifer Lawrence. By Brian Nelson, CFA Netflix’s (NFLX) shares are considerably vulnerable. The content distributor’s business model is in jeopardy in light of rising cash content costs amid a subpar product offering, and we don’t believe there is an easy answer to its woes — either ever-higher cash streaming content costs will obliterate equity value over the long haul despite member growth, or a cut in such necessary cash content obligations will hurt its streaming product assortment and therefore member growth and subscriber retention. We’re pointing investors to the low end of the fair value estimate range for shares, the low-$60s, but we believe there may be further downside … Read more