What has gone wrong with our world that making a 6 billion dollar a year profit is considered a problem?
Because it is a problem.
Firstly, it's a problem because stock prices are a measure of predicted future value. The profit today is mostly irrelevant. In order to make a profit on shares the business has to be in a position to do better in the future. If it doesn't then people won't believe it'll do better even farther in to the future, so they won't bid more for the shares than they're worth today. That means investors can't make a profit. If you bought Netflix shares in the past you'll lose money. That's a problem.
Secondly, and in my opinion more importantly, Netflix (and every other tech unicorn) use their shares as a hiring incentive. If the shares are going the wrong way then good hires will refuse offers and go elsewhere. A big chunk of renumeration in tech is predicated on people getting stock instead of cash because that's worth more to the individual and cheaper for the business. If that fails then the business has to start dipping in to that $6bn profit to replace people who leave, or to acquire businesses, or just to maintain the status quo.
It isn't hard to imagine a scenario where a $6bn profit turns into a loss within a decade or less. The driving force behind people saying Netflix has a problem is that they're predicting that the future of the company isn't good.
I mean, they might be wrong and Netflix might be fine, and ultimately even if things go badly Netflix is never going to "fail" because it'll get bought long before that happens, but if you hold Netflix stock it's entirely reasonable to be worried despite the healthy profit they make.
What's supposed to happen is that profitable companies start paying dividends to their shareholders. If you're getting dividends, then you don't mind if the value of your shares is staying flat or even dropping a little. The original purpose of owning shares in a company wasn't only that the value of the shares themselves would increase, but that they'd pay dividends so shareholders can make a profit over the life of a company.
As far as I know, Netflix shares, much like shares in many other tech companies, do not pay any dividend. Perhaps it's time they begin.
> The original purpose of owning shares in a company wasn't only that the value of the shares themselves would increase, but that they'd pay dividends so shareholders can make a profit over the life of a company.
I do not want dividends if I think the business can invest the money with a higher probability of better ROI than I can. If shareholders want dividends, they can vote for them.
With a dividend, you have to pay taxes now. Without the dividend, the stock price remains higher so you sit on higher unrealized gains. But assuming you can sell it anytime (it is liquid), the ROI is still there without the dividend.
Borrowing is not free. Other owners of the company may not have the same cash flow objectives. If you have enough votes on the board to make that the objective, then it is possible, but longer term stakeholders will probably object to being saddled with debt so some can cash out now.
As of a few years ago, they paid all cash, gave you an additional 5% of your salary in options, and you could purchase more options if you want. I don't believe they allow 100% allocation any more (but they once did, feel like that ended around 2015 or so)
That's not quite true. It means investors can't plan to make a profit by selling future shares based on the price growth beating inflation.
But...investors can still make a profit from dividends. There are plenty of large companies that are much less growth focused, and much more dividend focused.
Nothing, theyre just Attempting to price the shares correctly now.
Its $6bn in profit still at a $96bn valuation. Down from $150bn. Quite high if only looking at profit. But I definitely like the revenues under the idea they can reduce overhead
I suppose the assumption of many investors is that competition is increasing and with that profitability will decline as well.
Still the markets are crazy right now.
the moment earnings dropped, yes. by now its just people getting stopped out, cutting losses, shorts and put buyers piling on. there is that idea of a death spiral where Netflix has to spend even more on content and licensing again while raising prices for users and pissing users off more, but that model was resilient for cable - although cable does not command such revenue multiples from traders.
I can see the business being fine, definitely watching for lower prices. netflix has always been a fun casino, super leveraged rocket.
I think Netflix has taken the right strategy by diversifying into more international content (Better Than Us, Squid Games, Alice)
Expand to casual games and interactive content.
As a consumer, the company will still provide real economic value
Facebook also still makes insane profits each year. And the stocks drop like hell. There is a lot of uncertainty in the market with many smaller growth stock of the Russel 2000 being completely oversold.
https://www.reuters.com/business/finance/us-small-cap-stocks...
Stocks got valuations into the hundreds and lower thousands times revenue. This is only sane if there is space for the business to grow a hundred times, what for those large companies is obviously not true.
Now that the US money hose decreased it's flow a little bit, the insanity of those valuations is hurting.
Most US publicly traded companies are valued off future growth, not off profitability. We have no shortage of profitable companies in the US, so investment gravitates towards those that have the next best thing.
What has gone wrong with our world that making a 6 billion dollar a year profit is considered a problem?