NFLX
The highlight from the quarter was that NFLX handily beat Int'l net subscriber adds again, and that's all it takes for this stock to work. Fundamentally, this remains a frustrating stock to watch since NFLX's model is predicated on raising long-term debt to fund its near-term operating expenses. That debt has increased by a factor of nearly 3x over the last 5 quarters, and it currently doesn't have enough cash to fund the $3-4B it expects to burn in 2018. This dynamic isn't likely to change anytime soon with minimum expected streaming content obligations of $15B over the next 3 years (as of 3Q17), even though NFLX itself believes those obligations could be $18B-$20B. But even that is probably a fraction of what NFLX will actually spend, which has historically been 3-5x greater than its expected obligations. However, this doesn't matter as long as NFLX can continue to tap the capital markets. But more importantly, what we and the rest of the fundamental analysts have been missing is that NFLX has been and will likely remain a phenomenal stock. All mgmt has to do is manage int'l sub add expectations and sell its pretty TAIL story. That said, instead of being fundamental curmudgeon, we're starting to think we should be looking at NFLX as a long rather than a short.
TWTR
We initially thought that the SoFi story was leaked because Noto wanted the official CEO title at TWTR on the heels of its turnaround, especially since he's been the de facto CEO since Costolo left in 2015. However he's officially leaving, which means on our long position is now on a short leash. Noto was also TWTR's longest-tenured C-suite officer; now the company is left with Dorsey, who is also CEO of Square, a relatively new CFO, and no clear successor to the COO (CEO) role. We don't believe this will have an impact on TWTR's 2018 revenue since its monetization head is still in place and the company has a series of exogenous tailwinds in 2018 that should help drive the top-line. However, we're not sure what this means for 2019 and beyond. We originally viewed our TWTR long as a one-year position, which we would reassess thereafter. Now we're pretty sure we'll be out before 2019.
Let us know if you have any questions or would like to discuss in more detail.
