Why Netflix is soaring (and why you should care)... 'More than 35% of total Internet traffic'... How the 'bundle' will die... New lows for gold... 'You're either a contrarian or a victim'...
Video-streaming service Netflix (NFLX) reported positive earnings last week... and the stock exploded higher.
Though the company reported lower profits versus the same period a year ago, Netflix revenues rose from $1.3 billion in the second quarter of 2014 to $1.6 billion today. It also reported pre-split profits of $0.42 per share, easily topping analysts' estimates of $0.28.
But the real metric that sent shares up nearly 20% on Thursday was better-than-expected subscriber-growth numbers. The company added almost 3.3 million new subscribers – nearly double the number from the second quarter of last year. Most of that growth has been abroad, with 2.4 million new international subscribers and around 900,000 new U.S. subscribers.
Netflix has transformed its business model in recent years, from its DVD-rental business in favor of the more popular online-streaming alternative. As a result, its subscriber base has swelled. Porter and his analysts explained this move in the July issue of Stansberry's Investment Advisory...
According to research, the typical pay-TV subscriber only watches 17 channels. But up until recently, cable companies have offered much larger, bundled packages. Subscribers get dozens – in some cases, hundreds – of channels they never view (or even know they have). And of course, they pay the corresponding fee. Of course, most viewers would rather pay for only what they watch. Why pay for anything else? And the industry is moving that way. You no longer need a cable to watch pay TV. With a decent Internet connection, you can watch almost anything online. Websites and services like YouTube, Hulu, and Netflix provide viewers with alternatives to traditional cable.
And demand is soaring. As the chart below shows, Netflix has grown its subscriber base from 7 million in 2007 to more than 60 million last year.
Today, Netflix accounts for more than 35% of total Internet traffic, according to the most recent installment of networking-equipment company Sandvine's Global Internet Phenomena Report. And traditional television providers, like Comcast, continue to feel the squeeze from subscribers "cutting the cord" and subscribing to online-streaming services. From a March article in the Wall Street Journal...
The primary reason for the steep fall-off in viewership, the [Cabletelevision Advertising Bureau, or "CAB"] trade group said: consumers are spending more time watching subscription streaming-video services like those from Netflix, Hulu, and Amazon. The CAB said it estimates that about 40% of third- and fourth-quarter TV-ratings declines can be attributed to such subscription video services...
Total TV viewing fell about 10% from a year earlier in the third quarter and about 9% in the fourth quarter, according to an analysis of Nielsen data by Sanford C. Bernstein.
Another trend pushing in Netflix's favor is ever-growing Internet connectivity. Consumers can now watch almost anything – live or recorded – via the Internet on their personal computer, tablet, or smartphone. And Porter's team believes that will inflict serious pain on the bundled-content providers (like Comcast). As Stansberry's Investment Advisory research analyst Bill Shaw explained...
As we noted, a typical pay-TV subscriber only watches 17 channels. Signing up for 100 or more channels will become something from the past. Even billionaire cable titan John Malone told the Wall Street Journal that the "bundle will fall apart." Customers are now demanding to pay for only what they watch. This forces cable companies to offer cheaper alternatives. Comcast just announced plans to offer a pared down Internet-only TV package for $15 a month. Companies aim these so-called "skinny bundles" at consumers who have never subscribed to traditional cable TV packages (or "cord nevers").
And a recent lawsuit between cable giant Verizon and sports-entertainment icon ESPN could mark a pivotal moment in the death of bundled TV. More from the July issue of Stansberry's Investment Advisory...
If 10 years from now we're looking back to see how the bundle died, this lawsuit could prove to be one of the first shots fired. ESPN's affiliate fees – the amount charged to cable and satellite providers for broadcasting its signal – are by far the highest of any network, around $6.50 per subscriber. Verizon decided to offer a scaled-down bundle – 35 channels for $55. In order to make the math work, Verizon had no choice but to leave ESPN and its pricy affiliate fee out of the bundle. (Verizon customers can, however, access ESPN via a higher-priced "premium" bundle.) This arrangement allegedly breached Verizon's contract with ESPN. Verizon knew this tactic would trigger a long, drawn-out, extremely expensive lawsuit with ESPN. But it had to offer the slimmed-down package. It was a conscious decision. It's what the customers demanded.
In this month's issue of Stansberry's Investment Advisory, Porter and his team outlined the changing trends in the pay-TV industry. They explained how wireless technology will change the way we watch TV... and identified a company in the industry that owns a "trophy asset" worth more than the company's market cap today.
When investors catch on to the real value of this company's trophy asset, shares could double. Porter's subscribers can get all of the details in this month's issue.
If you don't subscribe but are interested in the chance to own a trophy asset at discount prices, you can access this information with a subscription to Stansberry's Investment Advisory. Learn more about a risk-free trial right here.
While Internet stocks are booming today, no sector is more hated than resources. And the news just keeps getting worse, particularly for precious metals...
Gold hit a new five-year low this morning, falling more than 2% to less than $1,100 an ounce.
The financial media pointed to a weekend report from the People's Bank of China ("PBOC") – China's version of the Federal Reserve – as a reason for the plunge. From an article in the Wall Street Journal...
In its first update in more than six years, the People's Bank of China on Friday reported its gold reserves at 53.32 million troy ounces, up 57% from the end of 2009, but only about half of what market observers had estimated. China is one of the world's biggest gold buyers. "If people would have seen higher gold demand from China, it would have helped prices," said Ryan Case, head of institutional sales at Bullion Capital, a physical bullion exchange based in Australia.
Much of the selling came within a short period of time in early Asian trading, before the U.S. markets opened. And some investors quoted by the Journal suggested there might be more to the story...
"In our view, today's price action doesn't seem to be driven by fundamentals. The nature, size, and timing of the heavy selling suggests a market participant was taking advantage of low liquidity or some sort of forced selling had taken place," said Victor Thianpiriya, commodity strategist, in an ANZ report. In Shanghai, close to five metric tons of gold was sold on the Shanghai Gold Exchange in a two-minute window just before 9.30 a.m. local time, in a market where the normal daily volume traded is 25 tons, the ANZ report said.
ANZ added that there was an unusual spike in trading volumes in a gold futures contract in U.S.-based Comex, just before Shanghai opened.
We won't speculate on the cause of today's selloff. Attempting to find a reason for every short-term market move is a fool's game.
But it's worth considering... if a notoriously secretive country like China were interested in quietly accumulating more gold at better prices, this might be a good way to do it...
Regardless, there's no denying sentiment toward resources – and precious metals in particular – is bleak. As Phillip Futures analyst Howie Lee told the Journal, "Wherever you look, there is no reason to buy gold. I don't see any recovery in gold prices at this stage."
And that makes us extremely interested today. As we noted in Friday's Digest...
Buying a sector near the bottom is scary. The news at the bottom is always terrible. Your emotions will be against you. But buying amidst extreme pessimism is how you make the greatest amount of money...
We think we have a similar opportunity today.
Longtime Digest readers know resource markets are cyclical.
If there's one secret to making a fortune in commodities, it is to buy when no one else wants to. Or as our good friend and legendary resource investor Rick Rule likes to say: In the resource markets, "you're either a contrarian or a victim."
That's why Stansberry Research is co-hosting the top precious metals and resource experts in the world at the Sprott-Stansberry Vancouver Natural Resource Symposium, starting July 28.
With the event right around the corner, we realize it's probably too late for you to meet us there in person... So we've arranged a way for you to watch the entire event LIVE from the comfort of your own home.
For a small fraction of the cost to attend Vancouver in person – and with no more effort than turning on your computer – you'll have the chance to hear some of the best ideas from the "best of the best" of the resource world...
In addition to Rick Rule himself, you'll hear from Eric Sprott, chairman and founder of Sprott Asset Management... famed speculator Doug Casey... Ivanhoe Mines' Robert Friedland... Franco-Nevada CEO David Harquail... Silver Wheaton CEO Randy Smallwood... and many, many more.
Click hereto see the full lineup and get the all details on how to join us online in Vancouver next week.
New 52-week highs (as of 7/17/15): Allied World Assurance (AWH), ProShares Ultra Nasdaq Biotechnology Fund (BIB), Anheuser-Busch InBev (BUD), Chubb (CB), Cempra (CEMP), Dollar General (DG), eBay (EBAY), PowerShares QQQ Trust (QQQ), Scorpio Tankers (STNG), short position in Viacom (VIAB), Valero Energy (VLO), and W.R. Berkley (WRB).
In the mailbag, more subscriber feedback on Doc Eifrig and the economy, and a special thanks for Steve Sjuggerud. Tell us what's on your mind at feedback@stansberryresearch.com.
"I live in Northwest Ohio, and the economy is doing fairly well. I see all kinds of ads in the paper for medical, and manufacturing jobs. I think the key is changing, and upgrading your skills to be qualified for these jobs. Unfortunately not everyone wants to change or move on to new things. They want things to be like always were. A lot of people don't want to move either because of family or financial reasons. I know from first hand experience that many (not all) urbanites look down on rural areas. Actually our quality of life is great. Low cost of living, low crime, no traffic, and partying with most of your neighbors are just some of the benefits. We are 2 hours from a city in any direction if we want to go to concerts, or other cultural events. To quote George W. Bush: We have the Internets and everything." – Paid up subscriber DJW
"I want to reply to SB from Montana – I agree the simplest thing would be to pack it up & head out to where opportunity is better. I'm in the medical field I could get a job yesterday across the country. But when you have a house that would sit empty for years for sale with still some mortgage outstanding, plus part ownership in an office building, along with family, church & community your are committed to, its not that easy! I guess I'm doing Ok but most of the town isn't. Best Wishes!" – Paid-up subscriber DV
"I would say Doc is correct about the economy in general. Excluding auto loans, many consumers with the means, have been saving and not buying every 'just don't need to have item'. Personal debt is down, the mortgage foreclosures are down and some discretionary spending is also down which again leads to more savings or at least less personal debt. Eventually that finds it's way back to the economy and it broad measurements those indicators are in positive territory. Fundamentally however they cook the numbers I doubt that 5% un-employment is actually feasible. I see many who probably don't want a job and just enjoy the handouts from our government.
"Now, I lost my job and 10 years ago there were more like it but now I'm a bit stuck. I suppose those in Montana, Ohio and Tucson are seeing the same things. Mostly that is the effects of a global economy, technological enhancements and what I call the 'Age of Marginalization'. I could ramble for pages on what the 'Age of Marginalization' means but quickly it means we are too efficient at almost every task and all that is left to do is create work or products in the margins.
"With that in mind, that is what attracts me to Stansberry. We could be looking at all the high flying internet software stocks and marginal companies and chasing them and likely someday loosing nearly everything. Instead here at Stansberry most of the investing or guidance is given toward hard assets or investments with superior financials." – Paid-up subscriber Mike
"This is the first time I have ever contacted you all after several years of being a 'paid up' subscriber for many years. I would like to thank Stansberry Research for all of the fantastic research and information you have provided me over the years. I would like to send a special thanks to Dr. Steve Sjuggerud for his special research on [biotech].
"As of today's closing I have a gain of over 1,100%. Yes that is 11 times my original investment in July 2011. I had my trailing stops at a much higher percentage than Dr. Sjuggerud had, so I had never stopped out of this investment over the years. This was truly a once in a lifetime investment. My only regret is that I followed your advice as to position sizing. I wish I had 'backed up the truck' to load up on this one." – Paid up subscriber Robert H.
Regards,
Justin Brill
Baltimore, Maryland
July 20, 2015
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