The stock has come a long way in a short period of time. After tanking in 2022 along with so many tech stocks, SPOT shares have climbed almost 6-fold since.
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In this post, I’ll discuss the quarter, the change in reporting, Netflix’s million dollar question, management’s evasiveness on paid sharing and what inning we really might be in, and what seems to be a material change in management’s posture.
I’ll get straight to the point here: despite being an 11-bagger last year—and the single best performing stock in the entire world—CVNA is still a phenomenal investment. Here’s why.
More people are now acknowledging that Netflix won the “streaming wars,” but that implies the streaming wars ever happened. It was more of a cold war that never turned hot. In fact, the opposition gave up before it started and began selling its weapons back to Netflix.
User and subscriber growth continued to show impressive strength. MAUs grew 26% y/y to 574 million, adding 23 million sequentially and 2 million ahead of guidance. That was the company’s second-largest quarter ever for MAU net adds. Premium subs grew 16% y/y to 226 million, adding 6 million sequentially and 2 million ahead of guidance. Fourth-quarter guidance calls for more robust growth with MAUs reaching 601 million and Premium subs reaching 235 million. The long-term 1 billion MAU figure that has been thrown around for a long time no longer feels like a big stretch anymore.
In this valuation oriented Netflix post, I’ll discuss a few things:
Netflix’s long-term subscriber and average revenue per member
Why it is hard for management to keep operating margins down
Why Netflix’s long-term margins are higher than most are willing to assume
The recent acceleration of share repurchases and how much of the company management might be able to retire if the stock remains flat
A long-term scenario analysis in with five different outcomes plus a Priced In scenario—a reverse DCF—and corresponding valuations of the business based on those scenarios (a PDF with screenshots for IE subs; the downloadable Excel model for IE with Models subs)
A discussion of why this opportunity exists
It was always a bull case for Netflix that competitive streamers would come around to the realization that streaming on a smaller scale with less robust engagement metrics is a very difficult business.
A lot has happened since my last Carvana update in Carvana: Feedback Loops. Let’s run through it.
On July 18th, Carvana announced it was moving up its second-quarter earnings release date from August 3rd to the following morning. I thought this unusual move had to be driven by some sort of imminent capital raise and/or debt restructuring announcement.
The following morning the company announced its second-quarter results in conjunction with, sure enough, the launch of a debt exchange offer with the support of over 90% of its noteholders.
Second-quarter adjusted EBITDA increased from “positive” previously to “above $50 million” while non-GAAP GPU went from “above $5,000” to “above $6,000.” The “majority” of the non-GAAP GPU improvement is the result of selling down a large chunk of the elevated backlog of loans during the quarter. The “majority” language that Ernie used at the conference seemed to imply a minority of the improvement was attributable to something else, likely better retail GPU as a result of falling average days to sale.