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- 👉 Netflix's +335% Comeback
Happy Sunday, everyone.
To all my fellow Tennessee Volunteers out there, Go Big Orange!
Let’s jump into the analysis.
Portfolio Updates:
As it relates to the portfolio shown above, there hasn’t been any change since last week — besides the fact that I plan to add about +$15,000 to it in early-November. Stay tuned for a sort of “end of year reflection & rebalance” analysis coming your way mid-November / early-December.
As you all know, I’m a huge believer in “if you can predict the cash flow you can predict the stock price,” and I’ll be running every position through my own personal “cash flow filter” to determine if it will remain in the portfolio or not in 2025. Can’t wait to share this one!
As you all know, the above position in SPYI was made earlier this month — and I’m already thinking about changing it. However, not for reasons you might think…
NEOS Investments launched a Bitcoin High Income ETF (BTCI) on Thursday (10/17) and I want to put half of this $100K SPYI position in it! In case you’re new around here, I’ve been a big believer in Bitcoin’s strength since early-2023 — below is a screenshot of my first Bitcoin purchase during the recent bull run at under $25K per coin (+179% return).
Now my Bitcoin position (shown below) is up over $160K in value and I have every expectation we’ll end the year with Bitcoin trading at (or very close to) new all-time highs. I also believe Bitcoin will march its way up toward $100K per coin at some point in 2025, and I want to be along for the ride.
So back to my $100K SPYI position — if I can allocate half of that to the NEOS Bitcoin High Income ETF (BTCI) I’ll be able to see both monthly income around the 1.5% to 2% range ($1,000+ per month paid to me) as well share price appreciation while Bitcoin makes new all-time highs. With $50K positions in both BTCI and SPYI, I should be able to expect monthly income above $1,500 — something I’m very excited about.
Best of both worlds!
I’ve already sent M1 Finance a request to list BTCI on their platform, and the day it gets listed I’ll make the trade. This is your official heads up!
Week in Review — Too Long, Didn’t Read:
50% of Netflix’s new subscribers are choosing their ad-tier, ASML Holdings guides to a rough 2025, Taiwan Semiconductor’s management states AI demand is sustainable for years to come, Amazon & Google are committing $100s of millions toward nuclear energy to bolster AI development, Abu Dhabi will be the second site for The Sphere, Walgreens is closing over 1,200 stores, Retail sales surpassed expectations and home builder confidence slightly rose — despite mortgage rates rising (NOT falling).
Key Earnings Announcements:
50% of Netflix’s new subscribers are choosing their ad-tier, ASML Holdings guides to a rough 2025, and Taiwan Semiconductor’s management states AI demand is sustainable for years to come.
Netflix (NFLX)
Key Metrics
Revenue: $9.8 billion, an increase of +15% YoY
Operating Income: $2.9 billion, an increase of +30% YoY
Profits: $2.4 billion, an increase of +41% YoY
Earnings Release Callout
“We continue to build our advertising business and improve our offering for advertisers. Ads membership was up 35% quarter on quarter, and our ad tech platform is on track to launch in Canada in Q4 and more broadly in 2025.
We’ve delivered on our plan to reaccelerate our business, and we’re excited to finish the year strong with a great Q4 slate, including Squid Game S2, the Jake Paul/Mike Tyson fight and two NFL games on Christmas Day. As we look ahead to 2025, we’re focused on improving every aspect of our service and continuing to deliver healthy revenue and profit growth.”
My Takeaway
All I’ve gotta say is I hope Bill Ackman was sitting down when these earnings results were published! Haha. As you all might remember, legendary investor Bill Ackman took a $1B position in Netflix in January of 2022. The stock dumped -40%, Bill sold everything and subsequently lost $400M — and now the stock is up +98% since when he took his original position. Goes to show you simply can’t time the market — and if you have conviction in a company you need to stick things out.
Now onto the earnings analysis…
Netflix is doing everything right — they’re publishing top-tier content, their password sharing initiatives worked, their ad-tier subscription is now making as much as their normal paid-tier (with 50% of net new subscribers choosing it) … they executed on every single objective they laid out for investors mid-2022 when their stock was in the dumps.
Now it’s up +335% from those 2022 lows — and I ask myself… where do we go from here? Wall Street thinks their ad-tier is going to carry the team forward throughout both 2025 and 2026, which very much could be the case — but is that it? Is that the only thing to look forward to?
I guess a few things to consider if you are a bullish investor:
1) Can their ad-tier subscription continue to command $45 CPMs if we experience an economic slow down in 2025 or 2026? I lean probably not.
2) Can the company continue to interweave live events? I think this is very likely and very bullish for the company (two NFL games on Christmas this year will be streaming on Netflix).
3) Beyond share repurchases, how else can this company return cash to shareholders? Meta introduced a dividend — is Netflix next? I sure hope so!
There’s a ton to be excited about if you’ve been a bullish Netflix investor since 2022 or even 2023 — heck, the stock is up big YTD 2024 as well! But as we turn the page to 2025, I find myself asking “Where do we go from here?” and “Is it enough to justify a P/E ratio above 40X like it is today?”
No shares.
ASML Holdings (ASML)
Key Metrics (in euros €)
Revenue: €7.5 billion, an increase of +12% YoY
Operating Income: €2.4 billion, an increase of +12% YoY
Profits: €2.1 billion, an increase of +13% YoY
Earnings Release Callout
"While there continue to be strong developments and upside potential in AI, other market segments are taking longer to recover. It now appears the recovery is more gradual than previously expected. This is expected to continue in 2025, which is leading to customer cautiousness.
We expect a gross margin between 51% and 53%, which is below the range we then provided, mainly related to the delayed timing of EUV demand.”
My Takeaway
There’s a handful of you that might remember I originally purchased ASML Holdings as my “AI play” instead of Nvidia in early-2023 — I later switched this position to Nvidia in its entirety once I realized my mistake a few months later. After this earnings report, I’m very glad I made that switch when I did!
In case you’re unfamiliar, ASML Holdings is the company that makes the machines and equipment that make semiconductors — they’re the very beginning of the semi-making process.
However, the companies that buy these machines from them exponentially create semiconductors with them — which means if ASML isn’t careful, they could find themselves in longer-than-anticipated sales cycles. This is what seems to be the case for the company right now.
As you can read above, management isn’t very optimistic about the rest of 2024 nor most of 2025 as they cut their guidance — putting their new guidance well-below Wall Street’s original forecasts. This is why their stock price plummeted -20% after the report. Another concern investors share is the company’s over-reliance on TSMC as a customer — with customer concentration risk, especially one with such an unpredictable geopolitical future, volatility in the stock price is expected.
No shares, and no plan to buy anytime soon.
Taiwan Semiconductors (TSMC)
Key Metrics
Revenue: $23.7 billion, an increase of +39% YoY
Operating Income: $11.2 billion, an increase of +58% YoY
Profits: $10.1 billion, an increase of +54% YoY
Earnings Release Callout
“Our business in the third quarter was supported by strong smartphone and AI-related demand for our industry-leading 3nm and 5nm technologies. Moving into fourth quarter 2024, we expect our business to continue to be supported by strong demand for our leading-edge process technologies.”
My Takeaway
The company exceeded Wall Street’s expectations on profitability, with Q3 gross profit margins coming in +3.3% ahead of management’s own outlook — with management now guiding to 57-59% margins in Q4. This was catalyzed primarily by productivity gains and cost improvements. Before the report, there was speculation of an Apple order cut — however, TSMC is now guiding for Q4 revenue growth of +13% suggesting that Apple’s demand remains unchanged.
AI demand remains robust with TSMC’s more aggressive expansion in chip-on-wafer-on-substrate (a new packaging technology that creates high-performance AI computing components). Their management reiterated their confidence about AI demand for years to come. Based on their wholistic customer outlook, they continue to believe recent AI demand is just the beginning and the momentum is sustainable.
Based on historical remarks from TSMC’s management team, Wall Street expects the company will be able to capture low-20% total market share in 2025. Wall Street is also optimistic that despite single-digit-growth in PC and smartphone demand, as more and more AI applications are introduced that this market will experience momentum in 2025 and 2026.
At this time, I do not hold shares of TSMC. However, I’ll add them to my watchlist.
Investor Events / Global Affairs:
Amazon & Google are committing serious funds toward nuclear energy to bolster AI development, Abu Dhabi will be the second site for The Sphere, and Walgreens is falling apart.
Amazon & Google Are Going Nuclear
Source: NYT
Amazon and Google are making significant investments in small modular nuclear reactors to power their data centers — driven by rising electricity demand from AI. Amazon announced its plans just two days after Google, following Microsoft’s move to source power from the reactivated Three Mile Island plant. Google has signed a deal with Kairos Power to develop reactors, aiming to bring the first online by 2030, eventually providing 500 megawatts of power.
Amazon is collaborating with X-energy and Dominion Energy (D) to develop reactors in Virginia and Washington, with plans that could generate over 5,000 megawatts by the late 2030s. The International Energy Agency (IEA) estimates that global electricity consumption from data centers could surpass 1,000 terawatt hours by 2026 — more than doubling 2022 levels. Both companies already invest heavily in solar and wind power, but view nuclear energy as essential for achieving their carbon-reduction goals.
The U.S. government — targeting 100% clean electricity by 2035 — is supporting these efforts with $900 million for nuclear deployment.
Amazon (AMZN) Stock Performance, 5-Year Chart, Seeking Alpha
Google (GOOG) Stock Performance, 5-Year Chart, Seeking Alpha
“AI is driving a significant increase in the amount of data centers and power that are required on the grid… We view advanced new nuclear capacity as really key and essential.”
A Brand New Location for The Sphere (SPHR)
Source: Sphere Entertainment
The Sphere (based in Las Vegas) is officially opening a second location in Abu Dhabi. The new Sphere will mirror the original's 20,000-person capacity and ability to host concerts, events, and shows, though the exact timeline and location have not yet been revealed.
Abu Dhabi's Department of Culture and Tourism will cover the costs of building the venue and pay annual fees to license its creative content. The original Las Vegas Sphere (which opened in 2023) is 366 feet tall, 516 feet wide, and is known for its impressive LED exterior and immersive interior experiences.
Most Sphere Entertainment analysts expected London to be the second location, so this came as a surprise to many people.
Sphere Entertainment (SPHR) Stock Performance, All-Time Chart, Seeking Alpha
“The vision for Sphere has always included a global network of venues… Sphere is redefining live entertainment and extending the reach of its transformative impact. We are proud to collaborate with DCT Abu Dhabi to develop Sphere in their city.”
Walgreens (WBA) Will Close 1,200+ Stores
Source: CNN Business
Walgreens plans to close around 1,200 stores as it and other U.S. drugstore chains, like CVS and Rite Aid, struggle to redefine their role for shoppers amid rising costs, theft, and competition from online retailers. Walgreens — which operates 8,500 stores — will start by shutting down 500 locations this fiscal year, prioritizing underperforming stores or those with expiring leases.
CVS is also finishing a plan to close 900 stores, while Rite Aid is down to about 1,300 locations after filing for bankruptcy. Walgreens aims to focus on its remaining 6,000 profitable stores and experiment with smaller, less costly locations. The company is reassessing its product offerings, considering more Walgreens-branded items, and exploring ways pharmacists can provide healthcare services like diagnosing common illnesses. Walgreens is also reviewing its VillageMD clinic business, which it might sell, signaling a shift away from its earlier push into primary care.
Walgreens Boots Alliance (WBA) Stock Performance, 5-Year Chart, Seeking Alpha
“They’ve really got to rethink how they do business and, most importantly, what they mean and what value they bring to the customer.”
Major Economic Events:
Retail sales surpassed expectations and home builder confidence slightly rose — despite mortgage rates rising (NOT falling).
Retail Sales
Source: Bloomberg
U.S. retail sales rose +0.4% in September, exceeding forecasts and reflecting resilient consumer spending that continues to support the economy. Excluding autos and gasoline, sales increased +0.7%, with 10 of 13 retail categories posting gains, led by miscellaneous store retailers and apparel.
Control-group sales, which influence GDP calculations, surged +0.7%, the strongest in three months, and are growing at an annualized rate of +6.4%. This robust consumer demand comes amid rising wages and solid job growth, with more than 250,000 jobs added in September.
However, much of the spending growth is concentrated among higher-income consumers benefiting from asset-price gains. Despite strong retail data, the Federal Reserve is still expected to cut interest rates next month.
“Barring a sharp downturn in the labor market, we expect consumer spending to continue growing moderately amid signs that frugal consumers are seeking cheaper options for the holiday season, and even mid- to high-income groups are under financial pressure.”
Home Builder Confidence
Homebuilder confidence rose in October despite rising mortgage rates.
The National Association of Home Builders (NAHB) / Wells Fargo Housing Market Index increased two points to 43 — beating economists' expectations of 42.
While still below 50, which signals poor conditions, this marks the second consecutive monthly gain. The increase in optimism is driven by expectations of a lower interest rate environment following the Federal Reserve's recent rate cut, which has lowered mortgage rates by over a percentage point compared to last year.
However, the average rate for a 30-year fixed mortgage has climbed to 6.44% — the highest level since August. To boost sales, 62% of builders offered sales incentives and 32% reduced home prices — with the average price cut rising to 6%. The outlook for future sales rose 4 points to 57, signaling stronger optimism in the coming months.
“Our survey members, in particular, are feeling that we're on the backside of the bad news and that we are looking forward to a lower interest rate environment, certainly for mortgage rates in the future, and that the market's going to come back strong.”
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