1) Streaming giant Netflix (NFLX) continues to be high on the list of stocks my team at Stansberry Research and I are evaluating. It caught my eye recently for two reasons...
First, it dropped 4.7% on Friday to close at $71.79 after Wells Fargo (WFC) analyst Steven Cahall downgraded the stock from "equal weight" to "underweight." He also lowered his price target from $80 to $57.
Cahall expressed concern about softening viewer engagement and a weaker slate of original series in the second half of the year, which could lead to rising subscriber churn.
Second, my wife and I just finished binge-watching Netflix's latest offering – the fifth season of Israeli political thriller Fauda. Like the first four seasons, it was outstanding.
The seventh and eighth episodes were really tough to watch, as they're flashbacks to the Hamas attack on October 7, 2023 and capture the horrors of that day.
The season is getting great reviews – here's the one from the New York Times. It's even finding a strong audience in Arab countries and hit No. 1 on Netflix in Lebanon, as this article from the Jewish Chronicle notes.
So, my experience and observation of Netflix is inconsistent with Cahall's concerns.
As I covered in my August 14 e-mail, my college buddy Bill Ackman of Pershing Square recently bought the stock, which he disclosed and discussed in his shareholder letter, earnings call, and Q&A.
In the letter, he wrote:
When we first invested in early 2022, investors feared an escalating content arms race among a crowded field of streaming entrants. At the same time, cash content spend substantially exceeded content amortization, weighing on free cash flow. The launch of a previously disavowed advertising tier added further uncertainty.
Netflix has since effectively won the streaming wars. Its subscriber base now exceeds any competitor's by a wide margin, and that scale is self-reinforcing. Netflix can outspend rivals on content while spreading the cost across the industry's largest user base, improving both the value proposition for subscribers and profitability for the company.
He concluded that Netflix looks to be trading at a discount now:
Looking forward, we expect Netflix to compound revenue at a double-digit growth rate, with content costs growing more slowly than revenue driving continued margin expansion. Combined with a robust buyback program, we estimate earnings should compound at close to 20% annually. We believe the company's current valuation multiple represents a substantial discount for a business with such a strong growth profile and dominant market position.
My friend and former colleague Glenn Tongue and I agree. We pitched the stock at the Value Investing Seminar in Italy on July 10, when it closed at $73.37. (I shared our presentation in my July 28 e-mail.)
And after analyzing the company's financials in my July 6 e-mail, I concluded:
[This] is an A+ financial picture: Netflix continues to grow rapidly, [free cash flow] is soaring, and its balance sheet is strong.
Since then, Netflix had a nice run into the low $80s but has now fallen close to a two-year low.
As for valuation, the stock got ahead of itself when it peaked 13 months ago at more than 50 times forward earnings.
But with the stock down and earnings up, it now trades at only 21.1 times this year's consensus analysts' estimates and 18.8 times next year's. Those are below-market multiples for a far-above-market-quality business.
2) Unlike Netflix, the stock of another one of my favorite tech giants, Meta Platforms (META), is doing well...
In my July 31 e-mail on the company's most recent earnings report, I argued that concerns about its soaring capital expenditures ("capex") were overblown:
This reminds me of when investors lost their minds about Meta's big investment in the metaverse, which briefly caused the stock to drop below $100 in late 2022 – just before it took off. CEO Mark Zuckerberg is rational – if Meta's capex isn't paying off, he'll scale it back.
As for its valuation, I concluded:
At yesterday's closing price of $539.03, the stock now trades at a mere 15.3 times next year's estimates of $35.12. That's not quite as low as the 12.9 forward multiple it reached in late 2022, but it's close.
Since then, the stock is up 23.5% to close Friday at $665.75. At this price, it's now tied with Amazon (AMZN) as my favorite large-cap tech stock.
But I still think Meta has more room to run thanks to the rollout of Muse – a personal AI agent that completes multistep tasks across apps, browsers, and devices.
My friend Scott Galloway's Prof G Media newsletter gave it a raving review:
The app is gaining traction. As of Friday, it ranked No. 1 in Apple's App Store, ahead of ChatGPT at No. 2, Gemini at No. 8, and Claude at No. 13. Since its unveiling on September 8, Meta has added nearly $170 billion in market cap and is up 9% versus the S&P 500's 2% decline.
Meta has certain advantages that the frontier labs don't. For example, 9 out of every 10 internet users outside China interact with a Meta product at least monthly. This means that Meta has both unprecedented training data for its AI systems, and one of the biggest user bases before it even releases a new product.
Here's Scott's take:
The most successful companies have one thing in common: They are time machines. What do I mean by that?
They give people time back. When you order from Amazon, you get faster shipping. When you watch Netflix, you skip the commercials. Muse is a time machine.
When you download the app, you log in with Instagram, Facebook, or WhatsApp, so it already knows you. It's instantly benefiting from first-party data that would take another company months to build: where you like to eat, who your friends are, where you live, etc.
Also, it doesn't wait for you to tell it what to do. Within about three clicks of downloading, you're prompted to open the ideas tab, where it tells you how it can help. For example: Take a picture of your workout gear, and it builds you a workout routine. It makes your life easier immediately. It can even call businesses on your behalf.
Scott's colleague Dan tested Muse against Anthropic's Claude, OpenAI's ChatGPT, and Google's Gemini. He gave the four AI agents this prompt:
Find and book a dinner reservation for 2 this Saturday, 6:30 to 8:30 p.m., in Williamsburg, sit-down, 4.3 stars minimum.
Here's how it went, according to Dan (spoiler alert – Muse was the best):
Claude asked me to connect to OpenTable, picked a restaurant, presented a couple options, and then informed me that it could not make the final reservation. FAIL.
ChatGPT also asked to connect to OpenTable. It picked a restaurant and offered some times, but then it said it couldn't complete the reservation. FAIL.
Gemini presented me with four restaurants, then, after I picked one, asked if I wanted to make the reservation. I confirmed. Then it asked me again if I wanted the reservation. I said yes. Then it asked again, and again. Then it made the reservation. PASS – but with some extra steps.
Meta's Muse found a restaurant, asked for my email and phone number, confirmed that the information was correct, and then immediately sent me a message that the reservation was booked. The whole thing was done in less than a minute. PASS and WIN.
For further insight, I turned to a friend whom I've quoted many times. He's a highly successful private investor who still owns Meta shares he bought at less than $1, so he knows the company better than anyone.
He texted me this morning:
Galloway has been negative on the prospects for Meta for a very long time, so if he likes the product, it must really be good.
Zuckerberg is doing exactly what he said he would do. In the last earnings call, he said that Meta understands better than any other company how to build products for consumers, and they are the first company focusing on building an AI product that is useful for consumers and easy to use.
Everyone else is trying to solve the most difficult AI problems. Facebook is also doing that, but more importantly it wants to make AI a product that will make people's lives better and more useful, building an individual computer for everyone so people can use AI to access and improve their lives in a safe and private way.
It's the personal assistant for every person on WhatsApp, which I've been telling you they've been building for the last four years. And here it is.
I think they are just beginning to figure out the capabilities of this agent.
He says Muse is "basically OpenClaw for every person in the world" and explains:
OpenClaw was one of the first products that every techie, scientist, and deep-AI person got excited about (see description here), but it has stayed very niche because it's a hard product to set up and integrate, and is very hard to control (at one point Mac Minis were sold out because people were buying them to use OpenClaw to keep it separate from their own computers).
Zuckerberg has solved this, delivering it to every person on the planet in an easy-to-use way, by giving everyone their own computer in the cloud. And importantly, it's very secure.
He concludes:
Zuckerberg is playing the long game as usual, and as usual, the market just doesn't understand, listen to, or believe him when he says he's going to do things.
I look forward to trying out Muse. If you try it out yourself, please e-mail me by clicking here and let me know what you think!
My team and I are closely following both Netflix and Meta. If we decide to recommend either of them in a monthly issue of Stansberry's Investment Advisory, as always, our subscribers will be the first to know. You can become one by clicking here.
Best regards,
Whitney
P.S. To my Jewish readers, Shana Tova (Happy New Year), and I hope you're having an easy fast. Today is the end of the High Holy Days – 10 days of repentance that begin with Rosh Hashanah, the Jewish New Year. And it ends with the holiest day in the Jewish calendar – Yom Kippur, the Day of Atonement, marked by a 25-hour fast. It is a solemn time dedicated to repentance, prayer, and seeking forgiveness from God and fellow humans.
I'm fasting today because, while I'm not Jewish, I (with a smile) consider myself Jew-ish... My wife and three daughters are Jewish, and we've been members of Manhattan's Central Synagogue for more than 25 years. It's a wonderful and welcoming community that I enjoy and am proud to be part of.