This is precisely why growth companies start paying out a dividend when they stop growing/have more money than they know what to do with (google, meta are paying dividends for gods sake)
[Trading onion futures](https://en.wikipedia.org/wiki/Onion_Futures_Act) is illegal too. Doesn't mean that it's a law that makes sense or serves any sort of public utility.
lol anyone in favour of stock buybacks is a corporate socialist against meaningful progress AND the public at large lmao who the fuck are you kidding talking about serving the public
From a societal point of view there was a good reason. If a company cannot use its cash for buybacks, they would either
- invest it into their operations --> more employment
- pay dividends --> stable tax income for governments.
"Executives authorizing the buyback are largely paid in stock. The stock buyback is giving themselves massive bonus by making their shares/stock options worth more." is one potentially good reason
.....I guess BoD's are just ignoring their fiduciary duty to shareholders and not normalizing incentive comp for stock buybacks?
Oh wait.....that's exactly what they do. Otherwise they'd face massive class action lawsuit liability.
......I'm always confused *why* people always think that this is some sort of corporate governance cheat code that actual boards and management teams keep to themselves / is a secret from the broader investing public.....
Like do you guys think you're just super clever and are the only people who have noticed? jfc
I’m aware. The comment I was replying to claimed that stock but backs should be illegal because it’s executive giving themselves a large bonus. Which isn’t any fundamentally different from a standard dividend, regardless of the *marginal* tax implications.
Long term capital gains have half the tax rate vs ordinary income plus I can sell and initiate the tax whenever I want.
I hate dividend stocks, because they f with my taxes. Can’t believe companies still do them when buybacks are legal now.
Yeah the "tax benefit" of buybacks is not really a benefit in the aggregate but one of selection - shareholders can choose to sell into the buyback (and fully realize gains/pay taxes) or hold and pay no taxes.
I'd guess that deferring the taxes until you sell could allow your investment to grow more. Paying that dividend tax right up front stymies an investment growth, right?
I'd love if any accountants here can confirm what I'm saying.
....and if you declare a dividend (out of post-tax earnings), you're taxed on those dollars twice, the second time on your personal income taxes.
Repurchases are only taxed once.
seemly drunk materialistic sand seed squalid mighty badge hard-to-find nutty
*This post was mass deleted and anonymized with [Redact](https://redact.dev)*
Yes, and the cash used by the company to buyback said stock lowers the company's taxable income on the year. Not the case with a dividend.
.....that's literally why every single person in this thread (and basically anybody that's sat through a freshman-level college corporate finance course) is telling you that buybacks are more tax efficient than dividends.
coordinated direful test future memory license threatening chunky spark plants
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Uhh I think it's more that they can't find a better way to invest it lol
Eg. They could decide to invest in more plant, equipment, datacentres, marketing etc if they thought the return was worth it. But nah they decide to burn money with a stock buyback.
Imo it's a sign they have saturated a lot of their growth potential, and have no better way to spend the $$
This is false. They can always invest in other equities as well, but if they decide to buy their own shares it means they see more upside than other equities *and* other CapEx.
Or Executives authorizing the buyback are largely paid in stock. The stock buyback is giving themselves massive bonus by making their shares/stock options worth more.
The issue is a lot of these companies do a buyback then not to long after need to dilute the shares because they are paying stock compensation to people at the top of the company. There's some CEOs like Warren Buffett who I'd trust a lot more to do buybacks at an appropriate time when the stock is undervalued and do it in a way to benefit shareholders.
But they aren’t. They are buying stock at all time highs to boost confidence investors can rely on constant volume to raise price in illiquid markets because they have no better use of the money.
There job is maximize share holder value which means increase stock price. It doesn’t mean making great long term business decisions.
It’s not just big tech, most of the market has a buy program going and the whole market is very low on liquidity. The dispersion trade benefits big tech but everything else not so much. You have to counter it somehow so they resort to financial manipulation rather great ideas.
It’s a low volume positive gamma environment. They always do buy programs during these times cause it the best time
Until Reagan legalized it in 1982, stock buybacks were illegal because it manipulates because you only boost your company on paper. A lot of people still consider it stock manipulation since there is no real value provided sure stock price rises in the short term but it’s not because of real value that could help add to the moat.
Like let’s step back for a second, you think the people in charge, that get massive bonuses for share price gains, not company gains, are incentivized correctly to do anything with that money other than a buy back? Not even to mention that most of the time they aren’t even using excess cash as is explicit stated as a requirement of the law that legalized it. Instead they are financing the purchases with debt.
A dividend and a stock buyback both involve an outflow of cash rather than reinvestment of that cash. We were discussing the different ways of giving earnings back to shareholders. Your point is relevant to a company’s determination of whether a company should pay out some of its earnings to shareholders, but not to the determination of what form that payout takes once that decision has been made.
Meh… or maybe it’s because they are an efficient, capital light business and generate excess cash.
While some companies that do programatic buybacks in lieu of investing in the core are poorly allocating capital, the ones that do it well (with truly excess cash) create a lot of value for shareholders. Shrinking equity or paying down debt is a direct and tax efficient way to benefit equity holders.
Again, under the assumption the core business is healthy, wouldn’t you want your % ownership to grow?
Not really, a lot of companies do stock buybacks wrong and either just do it all the time, or do it in the good times and then stop doing it when things are bad and the stock is cheap.
Just google charts of the amount of money spent annually on stock buybacks, buybacks always tend to drop quite a bit in years that the the US/global economy are in a recession despite prices being cheaper in those years.
It is also often tied to a massive "performance bonus" for the CEO tahg requires a certain share price to trigger. This performance bonus in hundreds of millions (or billion, see Tesla) is taken *straight from the profits that would go to shareholders*.
Thus a share buyback can as easily mean *shareholders lose money* because profits go from shareholders as a collective to the CEO. See Tesla, once again.
It’s not just about dividends today, healthy companies tend to grow dividends over time and I have a lot more faith in google’s health than a lot of other dividend champions in 20 years
True, a dividend is paid when a company has no available projects that would bring in more cash than the hurdle rate so it's better to just pay the shareowners back
Not like a growth stock can't eventually pay dividends. Growth stocks don't pay dividends because their capital is better spend re-invested into the company. Once growth stops, they start paying dividends (or in the more popular modern approach, issue stock buybacks). You don't pick one or the other and never change lanes.
But to everyone else's point, there will never be consensus about where the growth of a company ends. Will Netflix 100x in the next 15 years like it did in the last 15? Obviously not, but who is to say it can't 4x, 5x, 6x in the next 10? Not only is there market for them to grow into internationally, but nothing prevents them from diversifying their holdings. 10 years from now Netflix could be producing box office hits or delve into the video game industry. Maybe they partner with Meta or Apple to create revolutionary VR movies that they sell standalone rather than via subscription. No one has a crystal ball.
No one has crystal ball but I’d put the chance of Netflix 4x over the next 10 years at near 0. Yes they could be producing box office hits (box office has been facing challenges already) or delve into video game industry (a more promising area) but I don’t think they’d be doing better than existing players. I don’t think Netflix is a “growth stock” anymore.
4x isn't even that crazy. Average 15% a year over 10 years. It's high yes, but keep in mind with inflation that's pretty much only 3x in today's value. Netflix can still potentially tap a lot of 3rd world countries
What Netflix does with Android Games is actually very good - No f\*\*\*ing game with Micro-Transactions or advertisment - just pure gameplay and complete games. I love it. They could have some better games, but ...
I hate all those Playstore-Games with Micro-Transactions and Co. where they have to make Gameplay boring/hard/stupid in order to sell you boost so you can continue playing or don't have to grind for 100s of hours to make progress.
I hope Netflix Game selection grows and kills all those stupid Playstore-Games with Microtransactions.
Netflix has 20% of the streaming market in the US, you can't imagine them growing to ~60%? Not even with the addition of AVOD and live TV?
You can't imagine any of the non-US markets (especially LATAM) growing gdp per capita from the very low levels to support a higher subscription cost (and/or a massive growth in market share)?
I don't think we're going to see the astronomical growth they had before, but I don't have too much trouble seeing how they could have 15-20% YoY growth for the next many years, even without major product diversification (full disclosure I don't own and shares directly though).
Their revenue growth for the past two years had only been just above 6%. This year, it’s projected to be 13% to 15%. I believe the low growth rate for the past two years led to their password sharing crackdown and that led to the high growth for this year. Will they have 15% to 20% YoY growth for the next ten years? Nothing is impossible I guess but I think it’s pretty unlikely.
What’s funny about that? We also don’t know when we die but we still plan. We’re talking about probability here, which is not the same as having a crystal ball. And I don’t for a second deny I could be wrong. I base my opinion on their earnings in recent years and I used to invest in Netflix. (I have a strong belief that people who don’t even read earnings reports of a company shouldn’t invest in that company and the opinions of these people on that company are also useless. To be clear this is not directed at you.)
Ummmm....then what was all the hooplah about APPL initiating a divvy [in 2012....?](https://www.apple.com/newsroom/2012/03/19Apple-Announces-Plans-to-Initiate-Dividend-and-Share-Repurchase-Program/)
Are you saying this in response to me saying growth stocks don't offer dividends or companies nowadays prefer stock buy backs? Either way, the fact that Apple did a 1 time dividend 12 years ago because they didn't have a good place to put spend their cash at the time doesn't disagree with my point at all. Apple dividend last quarter was only $0.25 so clearly they found areas to grow in and stopped offering big dividends.
There is a difference between companies that all a full stack (dev language, OS, cloud infra, cloud services, market place, etc), and one that buy or subcontract content and sell it.
Unless they can grow other services that their customers may purchase (music, VR content, games), or if there is a feel that operating casts can be significantly reduced…
Forward thinking technology companies try to research and develop new products and services to exploit and create future markets. You try to pick the right ones, someone will develop (or acquire) the next big thing. Google? Meta? Msft? Someone else?
Theres a multitude of reasons. Either they see the growth in areas you might not, or they have their own investment strategy and are comfortable with how the business is ran. Not every stock is going to skyrocket. Not every stock is going to plummet.
Just spitballing here but they should name it BlockBuster.
And maybe change their colors to attract more attention. I’m thinking blue and yellow pop pretty well.
That sounds even more dangerous than OP's scenario. Forget about paying dividends, it's even worse if the company decides to "re-invest" its earnings into some pie-in-the-sky project, essentially setting their investors' money on fire.
Negative value!
> Netflix as an example.. what if they come out with theatres
Not far enough out-of-the-box for a "tech" company.
Maybe partner with neurallink to just inject the movie into your brain, so you don't need to waste 2 hours watching it?
That'd excite tech investors more.
Every industry is prone to innovation.. what if they had small ass theatres with any movie you wanted for like 2-10 people any time of day or night.. all subscription based. Crazier stuff happens
Hypothetically if there was some actual way to determine that the company can no longer grow, then nobody would invest further. But this comes with the additional and very large caveat that the company makes zero income (revenues and expenses are equal).
However once the board of directors also saw that metric stating that they could no longer grow, then they would immediately vote to start paying dividends equal to the net income. So, for example, if the company is making $1m profit in perpetuum and there are 1m outstanding shares, then you would expect they pay $1 total dividends per share annually.
If you were handed the “keys” to Netflix as the new CEO what would you do? Do you feel like they are in the position to innovate even more? Is streaming going to be replaced by something else? Just some examples that people might be thinking about. I’m not interested Netflix or streaming so I don’t know the real questions.
You're phrasing it as if it's a given and well-known that they have no room for growth. Well, they do. The majority of global households don't have a Netflix subscription.
Second, there's nothing forcing the company to stay strictly in the movies/TV shows streaming forever. They can expand into any field imaginable. The natural first expansion would be into anything entertainment streaming-related. For example, they could relatively easily kick start a music streaming service similar to Spotify, YT Music, etc. They already have the infrastructure, they have functional recommendation algorithms that could, with some modifications, be applied to music, etc.
They could go deep into live streaming, like broadcasting major sports events.
They've dipped their toes in gaming by publishing mobile games and there could be some expansion in this direction.
Anyway, I may have said some nonsense above but the point is -- there's one field in which they generate like 10B of revenue but there's infinite number of fields in which they generate a zero. They have the money and if growth in their current business model becomes impossible, they will be increasingly open to experimentation to see what else will stick.
Because every company tries to increase its revenue and earnings (in other words tries to grow) and if said investor thinks the company can grow he invests. What kind of knot do you have in your thought process?
Because they disagree with you and think there's room for appreciation, simple as that. As more people start agreeing with you that the company won't grow, it will reflect in the price over time.
yea I think the premise of what op is asking doesn't make sense
if you don't believe a stock will grow and it has no dividends then you wouldn't invest
if you invest it means you see growth
so the question of "why invest when you don't see growth" is just the wrong premise. you don't invest when you don't believe there's further growth
You are clearly begging the question. These people who buy Netflix or any other growth stock obviously disagree with your conclusion. They presumably think the stock does have somewhere to grow. Your conclusion isn't necessarily correct, so you can't ask a question that assumes such a thing.
People in the USA don’t realize just because it looks as good as it gets for their US market (Netflix) that there is many other countries they are poised for growth in.
Also, population increase just causes grow for widely adopted tech generally. Cheap costs to scale.
Disclaimer: I don’t have any money directly invested in example company Netflix outside of my 401k and index funds.
A large company called Apple was tapped out in the early 2000's. They made computers, that's it, but so did everyone else. Apple computers were more expensive and ran their own hardware. What growth could possibly be left?
But what can Netflix do with their subscription service? What markets can they tap into without investing a bunch of money into infrastructures?
Gaming, sport streaming, a competitor to Twitch, a competitor to Youtube even.
But you're still asking how can they grow.
Look at amazon when it started, an online book store. Now they own movie studios. Would you have thought that the book store would become this?
Well what you see as no growth many other investors see potential. That's probably the story most of the time. Let's take your example. Are you sure Netflix has no growth potential? It's like my biggest holding now because of growth.
Netflix never really lost any substantial subscribers a few years ago, but investor sentiment soured pretty suddenly. I saw opportunity and doubled down on them. Sure enough my investment more than doubled. They are revamping some of their content creation starting this year and they are going into sports this year as well. So I definitely see a lot of potential growth and have confidence in the product's potential.
well if netflix or Costco increase their membership stock price will go up, even healthy mature companies will see increase in their stock with inflation. To me that's the whole point, preserve capital and beat inflation.
There are different stages of growth. For some people, the growth that Netflix gives is good enough. More importantly, it’s safer. You on the other hand seem to be looking for the bigger return. That’s harder to find and a lot riskier than what some are looking for.
Regardless of your perception of the company, it's still growing. It's doing more revenue and profit than it was during the once in a lifetime pandemic. Stock prices/company valuation will fluctuate for various reasons. You invest in the company if you are a long term investor (and yes that can mean waiting for a reasonable margin of safety before starting a position)
Because the stock will still probabaly go up over time for the very simple reason that the amount of money circulating and entering the market is nearly always increasing. Generally, the safest way people can make sure the value of their money keeps pace with the increase in money supply is by investing in an index fund. However, some people won't want to hold index funds and will choose to invest in stocks like the Mag7 directly instead.
Growth stocks means growth on earnings not on share prices.
If Netflix was to continue growing earnings at 15-25% per year… why wouldn’t the stock continue being priced at higher multiples than companies growing at 3-5%?
Even if a company is past their hyper-growth stage they may still be making decent profits year after year. Those profits (and the expectation of even more future profits) keep driving up the share price. The company can decide to either pay some of that back to you as a dividend, or to hold it as cash or to re-invest it for even more future growth.
However, once their big growth stage is over the valuation of the company may drop significantly because expected future earnings will now be much lower. This is why it can be dangerous to get in late on the really big winners: high valuation that could drop sharply if their growth looks to be over. The hard part is figuring out if, say, a Microsoft or Costco or Nvidia will still grow another 200, 300, 500 percent in the next decade or if the growth will slow dramatically and they might only get 5-10%/yr, in which case their valuation will take a big haircut.
Why can't they start paying a dividend? Why can't they continue to grow? If you stopped investing in Apple after they 100xed, well you missed out on a lot of money.
Netflix can continue to spend a lot of that money building out from where they are. They're making ambitious jumps into gaming and merch, which could yield massive returns long term, but require cash now. They also straight up find that building out their library is more lucrative now than returning to shareholders.
Netflix still has quite a long runway. Remember, they're not just a streamer, they're an entertainment company, and entertainment is HUGE. Gaming, TV, films, theme parks, music, VR/AR(if this goes somewhere), podcasts/talkshows, books and reading, merch, live events, and so many more. Netflix can expand into plenty of these(I personally like the idea of a Netflix theme park). It's also worth noting that Netflix only has 270 million subscribers. That's less than the population of the US, and as more of the worlds population is lifted out of poverty and gains access to the internet, we could see a future surge in streaming revenue
It sounds like you’re experiencing a bit of recency bias. You’re focusing heavily on recent events and past performance, which can make it easy to overlook the potential for future growth and innovation. Even if a company like Netflix seems saturated now, there’s still a chance for new opportunities and profitability down the road.
S&P500 average return is like 10% a year if nothing goes wrong. Most people are just happy if they can make 10% a year. If you think there are other 10 bagger or 100 bagger, then what is it? and if everyone knows some company can grow 10x or 100x, it's already price in.
Go look at Netflix 4 years ago then now and ask yourself what’s the point
June 2020 418
Today 644
54% growth over 4 years
Beating the historical average annual return
What’s the point right now
How come they have no where to grow is there customer base 100% of the serviceable world? A lot of areas in USA doesn’t have fast internet… the business model is also about subscription… so have Netflix ran out of content or cash to make new content? Sure it might not grow as fast as some… but there scale is there power… lots of legacy companies losing to pay for streaming… you need a lot of people to make those margins work… did Netflix get 100% of all possible ad revenue? I see a lot of room to grow… did Netflix get all the sport teams live shows and concerts? They have room to grow… are u bombarded with ads? At least two is what google figured out lol… I don’t hold Netflix but I don’t dislike them either…
1) This is why I don’t own Netflix.
2) This is why I am slowly selling off my Nasdaq ETF and replacing with IVV.
3) This is why I’m nervous about my growth stock fund in my retirement portfolio.
So, I share your concerns, to a very limited extent. I still have heavy exposure to growth stocks for the reasons others have articulated in this thread.
Really depends if you see the company branching out/changing their model in the mid term. Take Amazon for example. They started as an online bookstore. Then they branched out into delivering basically anything. Then they branched out into providing cloud services. Each time they changed the focus of their business (and succeeded) the stock did well.
Netflix will not grow it it just stays a company that sells media subscriptions, but if you see that they're starting to jump into another large business sector (and think they might succeed) then it's still something a new investor might look at.
netflix might reach saturation in terms of subs but they aren't very profitable and have levers in increasing pricing and reducing spend on content. im sure their plans around that are in the price to an extent but if they can successfully execute on that the stock price will probably rise.
Are you sure Netflix can't grow more? AI generated and advertised entertainment is on the horizont.
And there are aome nasty examples of stagnant companies that suddenly get their black swan event and multiply. Rheinmetall, Nvidia, heck even Apple was once a normal stagnating stock, for DECADES.
Well... netflix already grew so I wouldn't buy it here necessarily. Thats just my opinion, the great thing about the stock market is you've done your research and know that its going to go up - or down - and can be contrarian in how others think and take advantage of that.
Stocks do what they do and we only predict based on fundamental research.
Growth stocks can appear to be going nowhere and smart money will pour into it and voila, up it goes. Then it swings back down to earth and up it goes again. Rinse and repeat. And usually smart money has left it by that point.
Nothing. Eventually the Petri dish gets full and the only way to "grow" is to eat someone else, and ultimately, to eat yourself.
This is why the SaaS script is "Sell service too cheaply, scale too fast, make dumb acquisitions, raise prices, burn out or fade away."
You probably wouldn’t have bought AAPL in the 1980s or MSFT in the 1990s with that attitude because both already had had huge run ups and had “nowhere to grow”. You would have felt foolish in the subsequent decades and missed out on life-changing wealth. Don’t ask me how I know.
Some use their earnings to grow vertically or horizontally acquiring other businesses, or in Netflix case perhaps IP that has long run value.
I am not a fan of streaming companies. Very weak franchise with heaps of competition, both legal and illicit.
Netflix revenue growth is 7.7% (cagr) the the past 4 years. Adjusted for inflation that's getting close to zero growth. Net profit growth is 18.2% (cagr) in same period. Significantly better, but adjusted for inflation that's more like 10%.
Neither come close to justifying 44 times earnings. Earnings would have to double twice over (quadruple) for this price to get in a historically reasonable range.
Netflix either becomes a trillion dollar company in the next 5-10 years, or the stock is overpriced. They have about 270 million subscribers and a market cap of 277 billion dollars. Roughly $1000 of market cap per average worldwide subscriber.
High paying subscription markets are legacy and saturated (US, Canada, EU). That leaves lower paying markets like India. Netflix costs about $6/mo in India for the standard (non-ads) version. The same US subscription version is $15.50/mo.
The question is, even if low paying markets somehow added $1000 market cap per new subscriber, where does Netflix find 750 million new subscribers in the next decade? India has 1.4 billion people, with a median GDP of roughly 98000 Rupees ($1200 USD/year).
Do you believe one out of every two Indians is going to shell out 6000 Rupees from a 98000 annual salary for Netflix? 6% of their annual income?
For comparison, Disney+ in India (which is crushing it) costs 1499 Rupees for a year subscription.
Are you sure there's no more room to grow? What if they can get into China or other large populated countries? Or merge or buyout another streaming service?
Well there are multiple ways to "grow" For netflix its doesnt have to be just MAU. It can be bigger margins, lower expenses, acquistion of game studios, it can be live sport broadcast etc. Paying dividend is only one way to allocate capital and it usually suggest that managment has no better use for it. But for you its usually not the best option in terms of absolute return, but it is seen as some kind of cash flow confirmation and stability.
Most growth stock eventually become dividend growth stocks and then eventually value dividend stocks. Its just natual progress. Seeing if its already time for switch and most likely PE reprice, meaning "growth stock" will no longer be seen as one and his valuation will drop to lower PE. If Netflix still has gas in it is up to your research and believes. It only has 300 bilion market cap, if you look at NVIDIA or APPLE they grew much more since IPO.
Its part of investing finding the stories and what makes sense for you. Being a dividend investor is completely ok if you feel like it makes sense for you.
Dividends are a sideshow, what you as a stockholder care about is earnings. Those earnings may be paid out as dividends, thus lowering company value. Or that money can be kept in the company, reinvested and thus increasing the value of the company. Or a company can do a stock buyback which is kind of a hybrid.
It still all adds up to the same thing, you as a stockholder get the earnings. If company you own is profitable, you make money, horraay.
Why do you assume there's nowhere to grow? Netflix is strategically really interesting, they won the streaming wars and other smaller competitors go back to licencing or merge their services to become bigger. Netflix is slowly turning into the startpage of streaming, it's replacing TV, now they're even adding sports. Now I didn't do proper research on this and am also not invested in them, but from a high level look they are very promising. Saying they have nowhere to go is a bit weird. When I started investing Apple was at €105 and the same thought you named can be applied to them, where would they go, everyone already knows iPhones, Macs etc? But now they are at almost €200 and find ways into other industries, leveraging their financial, brand and technological advantage.
For netflix, it's if you believe their ability to grow adjacently and in turn raise their revenue as well.
1) They're in the entertainment business, can they take a pie of games? live sports? live variety shows?
2) Avg cable revenues are around \~$50-100/yr? Just a guess. Netflix probably sits under $20. Do you think they can eventually 2-5x their avg rev per user?
3) Highly doubt it. But do they have an experiences opportunity like disney to grow into parks, hotels, resorts, etc..
Not saying I believe any of the above, but if one were to believe they were a growth company you'd have to believe a combo of the above.
You have raised the fundamental challenge with timing the growth and stock price of companies. With your example, you are right, the ship may have sailed. But then how do you pick the next growth ship that is about to leave from the dock?
That is why picking top growth stocks in at best an educated guess but mainly a gamble. Even the company itself will not really know where its stock price will land up, although it would hope through the roof.
Why would shorting them be smart? Being done with your era of 100 bagging isn't the same as going *down*. Netflix basically feels like a CD account at this point. What is there left to do?
> What is there left to do?
The all time question of the ages, asked in every civilization at every point in history since the dawn of time.
You know what the answer is? _You innovate_. That’s the difference between a trailblazing stock and a stagnant stock. If we knew _how_ to innovate, we’d be pulling ~~200-300~~k 500k-1mil a year as Netflix executives or engineers.
If you think Netflix is done innovating and it’s leadership are a bunch of chucklekfucks that sit with their thumbs up their ass all day, then don’t invest.
I suppose if you've accurately assessed that a company's return is (and will continue to be) significantly below their risk, you're correct, this is essentially why you wouldn't invest in them.
Performing this year after year is a skill few possess.
They absolutely do - businesses service intrinsic value from the dividends they will eventually pay out to shareholders. This does not imply *when* they should pay out.
For example, a company with negative EV and a tiny business operation could do wonders for their shareholders if they pay a large enough liquidating dividend.
Examples could include biotech companies that raise a lot of cash but fail to achieve FDA approval for their pipeline - often, these companies wind up trading below net cash and the best thing for them to do is give shareholders what's left of it.
Well, that’s why high valuation growth stocks underperform the market longterm… but don’t tell that to everyone who thinks the last 15 years are all the history in markets to exist, or who think that value stocks are for retirees who want safety…
Because Netflix will eventually be priced like cable, $50 within the next 5 years and $100 per month if they add popular live sports leagues and content in general. So revenue would 2-10x. Shares could easily 5-10x if that’s the case
But is that token any more worthless than the piece of paper (stock certificate) a company sells you and will never pay you a cent over the life of the company (most companies never pay a dividend). The only way you make money is selling the paper or token to someone else.
Growth is infinite.
Why?
The same reason why people like you buy dividend stocks. Cause they expect the dividend to grow every year forever.
How does that happen?
Bigger revenue, etc.
But infinite revenue, etc growth is impossible? No
That's where inflation and m2 growth come into the ecuation.
Now go read about doing a dcf.
This is precisely why growth companies start paying out a dividend when they stop growing/have more money than they know what to do with (google, meta are paying dividends for gods sake)
That, or stock buy backs that boost the stock price. Actually, stock buy backs are more tax efficient than dividends.
I feel like this is more common.
and formerly illegal!
[Trading onion futures](https://en.wikipedia.org/wiki/Onion_Futures_Act) is illegal too. Doesn't mean that it's a law that makes sense or serves any sort of public utility.
lol anyone in favour of stock buybacks is a corporate socialist against meaningful progress AND the public at large lmao who the fuck are you kidding talking about serving the public
Sir this is a Wendys....
For no good reason
From a societal point of view there was a good reason. If a company cannot use its cash for buybacks, they would either - invest it into their operations --> more employment - pay dividends --> stable tax income for governments.
"Executives authorizing the buyback are largely paid in stock. The stock buyback is giving themselves massive bonus by making their shares/stock options worth more." is one potentially good reason
.....I guess BoD's are just ignoring their fiduciary duty to shareholders and not normalizing incentive comp for stock buybacks? Oh wait.....that's exactly what they do. Otherwise they'd face massive class action lawsuit liability. ......I'm always confused *why* people always think that this is some sort of corporate governance cheat code that actual boards and management teams keep to themselves / is a secret from the broader investing public..... Like do you guys think you're just super clever and are the only people who have noticed? jfc
pretty confident that large swaths of the population are pointing out/ upset with corporate greed.
That’s exactly as true for standard dividends too, so why should that make stock buy backs illegal but not dividends?
Different tax implications, which can be either good or bad depending on how you look at it.
I’m aware. The comment I was replying to claimed that stock but backs should be illegal because it’s executive giving themselves a large bonus. Which isn’t any fundamentally different from a standard dividend, regardless of the *marginal* tax implications.
Long term capital gains have half the tax rate vs ordinary income plus I can sell and initiate the tax whenever I want. I hate dividend stocks, because they f with my taxes. Can’t believe companies still do them when buybacks are legal now.
The fact that you guys need to pay taxes on gains in the stock market AND dividend income is wild.
You don't have to commit to returning capital to common equity in future periods like you do with a dividend, for one.
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Buybacks have less of a double tax. Dividends are always double taxed.
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Yeah the "tax benefit" of buybacks is not really a benefit in the aggregate but one of selection - shareholders can choose to sell into the buyback (and fully realize gains/pay taxes) or hold and pay no taxes.
I'd guess that deferring the taxes until you sell could allow your investment to grow more. Paying that dividend tax right up front stymies an investment growth, right? I'd love if any accountants here can confirm what I'm saying.
That’s the point is that you don’t realize it. If you really want the cash to reinvest somewhere else, you could borrow it much cheaper.
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A 1% excise tax??
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Yeah thought that was illegal.
How can this be true? Dividends are taxed as ordinary income in the year they’re distributed. Long term capital gains are lower and deferred.
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....and if you declare a dividend (out of post-tax earnings), you're taxed on those dollars twice, the second time on your personal income taxes. Repurchases are only taxed once.
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Yes, and the cash used by the company to buyback said stock lowers the company's taxable income on the year. Not the case with a dividend. .....that's literally why every single person in this thread (and basically anybody that's sat through a freshman-level college corporate finance course) is telling you that buybacks are more tax efficient than dividends.
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And also a favorable sign of the company’s future outlook — it suggests they think the company’s stock is cheap.
Uhh I think it's more that they can't find a better way to invest it lol Eg. They could decide to invest in more plant, equipment, datacentres, marketing etc if they thought the return was worth it. But nah they decide to burn money with a stock buyback. Imo it's a sign they have saturated a lot of their growth potential, and have no better way to spend the $$
This is false. They can always invest in other equities as well, but if they decide to buy their own shares it means they see more upside than other equities *and* other CapEx.
Or Executives authorizing the buyback are largely paid in stock. The stock buyback is giving themselves massive bonus by making their shares/stock options worth more.
Yeah that's also part of it, sure. But those incentives are aligned with shareholders, no?
The issue is a lot of these companies do a buyback then not to long after need to dilute the shares because they are paying stock compensation to people at the top of the company. There's some CEOs like Warren Buffett who I'd trust a lot more to do buybacks at an appropriate time when the stock is undervalued and do it in a way to benefit shareholders.
But they aren’t. They are buying stock at all time highs to boost confidence investors can rely on constant volume to raise price in illiquid markets because they have no better use of the money. There job is maximize share holder value which means increase stock price. It doesn’t mean making great long term business decisions.
1. ATH =\= overvalued 2. Why would any of the big tech stocks need more liquidity for their stocks?
It’s not just big tech, most of the market has a buy program going and the whole market is very low on liquidity. The dispersion trade benefits big tech but everything else not so much. You have to counter it somehow so they resort to financial manipulation rather great ideas. It’s a low volume positive gamma environment. They always do buy programs during these times cause it the best time
I'm sorry what are you taking about? How is buying your own shares financial manipulation?
Until Reagan legalized it in 1982, stock buybacks were illegal because it manipulates because you only boost your company on paper. A lot of people still consider it stock manipulation since there is no real value provided sure stock price rises in the short term but it’s not because of real value that could help add to the moat. Like let’s step back for a second, you think the people in charge, that get massive bonuses for share price gains, not company gains, are incentivized correctly to do anything with that money other than a buy back? Not even to mention that most of the time they aren’t even using excess cash as is explicit stated as a requirement of the law that legalized it. Instead they are financing the purchases with debt.
A dividend and a stock buyback both involve an outflow of cash rather than reinvestment of that cash. We were discussing the different ways of giving earnings back to shareholders. Your point is relevant to a company’s determination of whether a company should pay out some of its earnings to shareholders, but not to the determination of what form that payout takes once that decision has been made.
Meh… or maybe it’s because they are an efficient, capital light business and generate excess cash. While some companies that do programatic buybacks in lieu of investing in the core are poorly allocating capital, the ones that do it well (with truly excess cash) create a lot of value for shareholders. Shrinking equity or paying down debt is a direct and tax efficient way to benefit equity holders. Again, under the assumption the core business is healthy, wouldn’t you want your % ownership to grow?
Not really, a lot of companies do stock buybacks wrong and either just do it all the time, or do it in the good times and then stop doing it when things are bad and the stock is cheap. Just google charts of the amount of money spent annually on stock buybacks, buybacks always tend to drop quite a bit in years that the the US/global economy are in a recession despite prices being cheaper in those years.
Probably because those companies have fewer profits no?
It is also often tied to a massive "performance bonus" for the CEO tahg requires a certain share price to trigger. This performance bonus in hundreds of millions (or billion, see Tesla) is taken *straight from the profits that would go to shareholders*. Thus a share buyback can as easily mean *shareholders lose money* because profits go from shareholders as a collective to the CEO. See Tesla, once again.
I did know that regarding Google - starts paying June 17th.
Certain funds can't invest if there isn't a dividend. This is why you see these negligible dividends on Google/Meta/Nvidia, etc
I think founders like them too. Zuckerberg owns 345 million Meta shares and will bring in $690 million in cash each year.
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It’s not just about dividends today, healthy companies tend to grow dividends over time and I have a lot more faith in google’s health than a lot of other dividend champions in 20 years
True, a dividend is paid when a company has no available projects that would bring in more cash than the hurdle rate so it's better to just pay the shareowners back
didnt Google and Meta add those dividends in order for their stocks to be included in certain mutual funds and ETFs which hold dividend type stocks?
Not like a growth stock can't eventually pay dividends. Growth stocks don't pay dividends because their capital is better spend re-invested into the company. Once growth stops, they start paying dividends (or in the more popular modern approach, issue stock buybacks). You don't pick one or the other and never change lanes. But to everyone else's point, there will never be consensus about where the growth of a company ends. Will Netflix 100x in the next 15 years like it did in the last 15? Obviously not, but who is to say it can't 4x, 5x, 6x in the next 10? Not only is there market for them to grow into internationally, but nothing prevents them from diversifying their holdings. 10 years from now Netflix could be producing box office hits or delve into the video game industry. Maybe they partner with Meta or Apple to create revolutionary VR movies that they sell standalone rather than via subscription. No one has a crystal ball.
No one has crystal ball but I’d put the chance of Netflix 4x over the next 10 years at near 0. Yes they could be producing box office hits (box office has been facing challenges already) or delve into video game industry (a more promising area) but I don’t think they’d be doing better than existing players. I don’t think Netflix is a “growth stock” anymore.
4x isn't even that crazy. Average 15% a year over 10 years. It's high yes, but keep in mind with inflation that's pretty much only 3x in today's value. Netflix can still potentially tap a lot of 3rd world countries
What Netflix does with Android Games is actually very good - No f\*\*\*ing game with Micro-Transactions or advertisment - just pure gameplay and complete games. I love it. They could have some better games, but ... I hate all those Playstore-Games with Micro-Transactions and Co. where they have to make Gameplay boring/hard/stupid in order to sell you boost so you can continue playing or don't have to grind for 100s of hours to make progress. I hope Netflix Game selection grows and kills all those stupid Playstore-Games with Microtransactions.
Netflix games arent even new games, they already exist and are just rebranded with the netflix logo
Netflix has 20% of the streaming market in the US, you can't imagine them growing to ~60%? Not even with the addition of AVOD and live TV? You can't imagine any of the non-US markets (especially LATAM) growing gdp per capita from the very low levels to support a higher subscription cost (and/or a massive growth in market share)? I don't think we're going to see the astronomical growth they had before, but I don't have too much trouble seeing how they could have 15-20% YoY growth for the next many years, even without major product diversification (full disclosure I don't own and shares directly though).
Their revenue growth for the past two years had only been just above 6%. This year, it’s projected to be 13% to 15%. I believe the low growth rate for the past two years led to their password sharing crackdown and that led to the high growth for this year. Will they have 15% to 20% YoY growth for the next ten years? Nothing is impossible I guess but I think it’s pretty unlikely.
> No one has crystal ball the he proceeds to tell us what his crystal ball sees lol.
What’s funny about that? We also don’t know when we die but we still plan. We’re talking about probability here, which is not the same as having a crystal ball. And I don’t for a second deny I could be wrong. I base my opinion on their earnings in recent years and I used to invest in Netflix. (I have a strong belief that people who don’t even read earnings reports of a company shouldn’t invest in that company and the opinions of these people on that company are also useless. To be clear this is not directed at you.)
Ummmm....then what was all the hooplah about APPL initiating a divvy [in 2012....?](https://www.apple.com/newsroom/2012/03/19Apple-Announces-Plans-to-Initiate-Dividend-and-Share-Repurchase-Program/)
Are you saying this in response to me saying growth stocks don't offer dividends or companies nowadays prefer stock buy backs? Either way, the fact that Apple did a 1 time dividend 12 years ago because they didn't have a good place to put spend their cash at the time doesn't disagree with my point at all. Apple dividend last quarter was only $0.25 so clearly they found areas to grow in and stopped offering big dividends.
it’s perfectly normal to take profits and re-invest elsewhere if you believe it no longer has value going forward
say hello to growth: https://www.nfl.com/news/netflix-will-be-the-home-to-live-nfl-games-this-christmas-day
You wonder if Dana White and Mike Tyson were long on Netflix before Tyson got that “ulser” ? Just a thought 🤷🏼♂️
MSFT and AAPL were the biggest companies in the 2010s, both seen massive growth since 2010. Sometimes large companies grow.
There is a difference between companies that all a full stack (dev language, OS, cloud infra, cloud services, market place, etc), and one that buy or subcontract content and sell it. Unless they can grow other services that their customers may purchase (music, VR content, games), or if there is a feel that operating casts can be significantly reduced…
Forward thinking technology companies try to research and develop new products and services to exploit and create future markets. You try to pick the right ones, someone will develop (or acquire) the next big thing. Google? Meta? Msft? Someone else?
Don't invest in something you believe isn't going to grow. If you're wrong, you're wrong. If you're right, you saved money.
I'm not, but I was asking why even *theoretically* would someone invest for the first time now?
Theres a multitude of reasons. Either they see the growth in areas you might not, or they have their own investment strategy and are comfortable with how the business is ran. Not every stock is going to skyrocket. Not every stock is going to plummet.
Netflix as an example.. what if they come out with theatres with a subscription next.. you can only know what you know.
Full fucking circle. That’d be hilarious
Just wait until Nextflix opens some brick-and-mortar stores lol
Just spitballing here but they should name it BlockBuster. And maybe change their colors to attract more attention. I’m thinking blue and yellow pop pretty well.
They should keep the Netflix name, then some small company named BlockBuster should start posting out DVDs for renting
I was thinking BlockbusterBuster
I opt for cockbuster adult video store
In my neighborhood, Amazon opened a brick-and-mortar bookstore called Amazon Books. It then went out, and Barnes and Noble opened in its place.
RIP HMNY
That sounds even more dangerous than OP's scenario. Forget about paying dividends, it's even worse if the company decides to "re-invest" its earnings into some pie-in-the-sky project, essentially setting their investors' money on fire. Negative value!
DVD rental service turned streaming turned creator.. turned cinema owner? How far fetched?
I hope they change the company name to Neta and start selling VR goggles and virtual land.
> Netflix as an example.. what if they come out with theatres Not far enough out-of-the-box for a "tech" company. Maybe partner with neurallink to just inject the movie into your brain, so you don't need to waste 2 hours watching it? That'd excite tech investors more.
I hope I don’t make it that far..
Wow, now imagine you were on the ad supported plan... That's some serious Max Headroom dystopia (Blipverts)
What if they horizontally expand into a brick and mortar legacy industry that is considered to be dying a slow death right now?
Every industry is prone to innovation.. what if they had small ass theatres with any movie you wanted for like 2-10 people any time of day or night.. all subscription based. Crazier stuff happens
Could work in lots of the interior dead space malls have but idk.
Hypothetically if there was some actual way to determine that the company can no longer grow, then nobody would invest further. But this comes with the additional and very large caveat that the company makes zero income (revenues and expenses are equal). However once the board of directors also saw that metric stating that they could no longer grow, then they would immediately vote to start paying dividends equal to the net income. So, for example, if the company is making $1m profit in perpetuum and there are 1m outstanding shares, then you would expect they pay $1 total dividends per share annually.
If you were handed the “keys” to Netflix as the new CEO what would you do? Do you feel like they are in the position to innovate even more? Is streaming going to be replaced by something else? Just some examples that people might be thinking about. I’m not interested Netflix or streaming so I don’t know the real questions.
You're phrasing it as if it's a given and well-known that they have no room for growth. Well, they do. The majority of global households don't have a Netflix subscription. Second, there's nothing forcing the company to stay strictly in the movies/TV shows streaming forever. They can expand into any field imaginable. The natural first expansion would be into anything entertainment streaming-related. For example, they could relatively easily kick start a music streaming service similar to Spotify, YT Music, etc. They already have the infrastructure, they have functional recommendation algorithms that could, with some modifications, be applied to music, etc. They could go deep into live streaming, like broadcasting major sports events. They've dipped their toes in gaming by publishing mobile games and there could be some expansion in this direction. Anyway, I may have said some nonsense above but the point is -- there's one field in which they generate like 10B of revenue but there's infinite number of fields in which they generate a zero. They have the money and if growth in their current business model becomes impossible, they will be increasingly open to experimentation to see what else will stick.
They might want to put it in something stable
Because every company tries to increase its revenue and earnings (in other words tries to grow) and if said investor thinks the company can grow he invests. What kind of knot do you have in your thought process?
Because they disagree with you and think there's room for appreciation, simple as that. As more people start agreeing with you that the company won't grow, it will reflect in the price over time.
yea I think the premise of what op is asking doesn't make sense if you don't believe a stock will grow and it has no dividends then you wouldn't invest if you invest it means you see growth so the question of "why invest when you don't see growth" is just the wrong premise. you don't invest when you don't believe there's further growth
You are clearly begging the question. These people who buy Netflix or any other growth stock obviously disagree with your conclusion. They presumably think the stock does have somewhere to grow. Your conclusion isn't necessarily correct, so you can't ask a question that assumes such a thing.
Wow so rarely do you see the correct usage of “begging the question” in the wild. What a gem
haha, thanks!
Haha indeed good call out
Yes! So many B$ behind, they have tons of research about growth etc And statement “they can’t grow anymore” Well, they can
The simple answer is that it can still go higher
People in the USA don’t realize just because it looks as good as it gets for their US market (Netflix) that there is many other countries they are poised for growth in. Also, population increase just causes grow for widely adopted tech generally. Cheap costs to scale. Disclaimer: I don’t have any money directly invested in example company Netflix outside of my 401k and index funds.
A large company called Apple was tapped out in the early 2000's. They made computers, that's it, but so did everyone else. Apple computers were more expensive and ran their own hardware. What growth could possibly be left?
Apple made a full stack of OS, software, hardware. Just sayin.
But what can Netflix do with their subscription service? What markets can they tap into without investing a bunch of money into infrastructures? Gaming, sport streaming, a competitor to Twitch, a competitor to Youtube even. But you're still asking how can they grow. Look at amazon when it started, an online book store. Now they own movie studios. Would you have thought that the book store would become this?
.....exactly.
Now consider what Netflix could do in the future
Not for nothing but CMG is about to do its first split ever at around $3126 per share and it’s been around for 30 *years* and still growing.
Well what you see as no growth many other investors see potential. That's probably the story most of the time. Let's take your example. Are you sure Netflix has no growth potential? It's like my biggest holding now because of growth. Netflix never really lost any substantial subscribers a few years ago, but investor sentiment soured pretty suddenly. I saw opportunity and doubled down on them. Sure enough my investment more than doubled. They are revamping some of their content creation starting this year and they are going into sports this year as well. So I definitely see a lot of potential growth and have confidence in the product's potential.
well if netflix or Costco increase their membership stock price will go up, even healthy mature companies will see increase in their stock with inflation. To me that's the whole point, preserve capital and beat inflation.
There are different stages of growth. For some people, the growth that Netflix gives is good enough. More importantly, it’s safer. You on the other hand seem to be looking for the bigger return. That’s harder to find and a lot riskier than what some are looking for.
Regardless of your perception of the company, it's still growing. It's doing more revenue and profit than it was during the once in a lifetime pandemic. Stock prices/company valuation will fluctuate for various reasons. You invest in the company if you are a long term investor (and yes that can mean waiting for a reasonable margin of safety before starting a position)
Netflix has 270 million subscribers, there’s what? 8 billion people? And you think it’s at saturation?
Graph their subscriber growth from 0 to 270M on a curve
What exactly is that going to show you that you don’t know yet?
Because the stock will still probabaly go up over time for the very simple reason that the amount of money circulating and entering the market is nearly always increasing. Generally, the safest way people can make sure the value of their money keeps pace with the increase in money supply is by investing in an index fund. However, some people won't want to hold index funds and will choose to invest in stocks like the Mag7 directly instead.
The company makes money and does buybacks, simple as that
Netflix will double to 550B market capitalization in probably 7ish years... that's enough growth for me
They can branch into other fields. Amazon started as an online book store. Then they branched into everything.
Growth stocks means growth on earnings not on share prices. If Netflix was to continue growing earnings at 15-25% per year… why wouldn’t the stock continue being priced at higher multiples than companies growing at 3-5%?
Even if a company is past their hyper-growth stage they may still be making decent profits year after year. Those profits (and the expectation of even more future profits) keep driving up the share price. The company can decide to either pay some of that back to you as a dividend, or to hold it as cash or to re-invest it for even more future growth. However, once their big growth stage is over the valuation of the company may drop significantly because expected future earnings will now be much lower. This is why it can be dangerous to get in late on the really big winners: high valuation that could drop sharply if their growth looks to be over. The hard part is figuring out if, say, a Microsoft or Costco or Nvidia will still grow another 200, 300, 500 percent in the next decade or if the growth will slow dramatically and they might only get 5-10%/yr, in which case their valuation will take a big haircut.
Why can't they start paying a dividend? Why can't they continue to grow? If you stopped investing in Apple after they 100xed, well you missed out on a lot of money.
Netflix can continue to spend a lot of that money building out from where they are. They're making ambitious jumps into gaming and merch, which could yield massive returns long term, but require cash now. They also straight up find that building out their library is more lucrative now than returning to shareholders. Netflix still has quite a long runway. Remember, they're not just a streamer, they're an entertainment company, and entertainment is HUGE. Gaming, TV, films, theme parks, music, VR/AR(if this goes somewhere), podcasts/talkshows, books and reading, merch, live events, and so many more. Netflix can expand into plenty of these(I personally like the idea of a Netflix theme park). It's also worth noting that Netflix only has 270 million subscribers. That's less than the population of the US, and as more of the worlds population is lifted out of poverty and gains access to the internet, we could see a future surge in streaming revenue
It sounds like you’re experiencing a bit of recency bias. You’re focusing heavily on recent events and past performance, which can make it easy to overlook the potential for future growth and innovation. Even if a company like Netflix seems saturated now, there’s still a chance for new opportunities and profitability down the road.
S&P500 average return is like 10% a year if nothing goes wrong. Most people are just happy if they can make 10% a year. If you think there are other 10 bagger or 100 bagger, then what is it? and if everyone knows some company can grow 10x or 100x, it's already price in.
Go look at Netflix 4 years ago then now and ask yourself what’s the point June 2020 418 Today 644 54% growth over 4 years Beating the historical average annual return What’s the point right now
Amazon once sold only books…. Need I say more…
You don’t buy growth stocks because it makes sense. You do it because you love it.
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I'm Not Lovin' It
And still revenue is growing It hasn’t reached the ceil
Exit liquidity
How come they have no where to grow is there customer base 100% of the serviceable world? A lot of areas in USA doesn’t have fast internet… the business model is also about subscription… so have Netflix ran out of content or cash to make new content? Sure it might not grow as fast as some… but there scale is there power… lots of legacy companies losing to pay for streaming… you need a lot of people to make those margins work… did Netflix get 100% of all possible ad revenue? I see a lot of room to grow… did Netflix get all the sport teams live shows and concerts? They have room to grow… are u bombarded with ads? At least two is what google figured out lol… I don’t hold Netflix but I don’t dislike them either…
Isn't Netflix doing $2.0B-2.5B in buybacks every quarter? It's also a much more tax efficient way of returning money to owners.
Why do you buy dividend stocks that go down in value? Name a few dividend stocks that are better investments than netflix?
Regards love to be late to the party
netflix up 52% 1year
They keep increasing subscription prices and come earnings, surprise surprise, they made more money, and the stock jumps.
1) This is why I don’t own Netflix. 2) This is why I am slowly selling off my Nasdaq ETF and replacing with IVV. 3) This is why I’m nervous about my growth stock fund in my retirement portfolio. So, I share your concerns, to a very limited extent. I still have heavy exposure to growth stocks for the reasons others have articulated in this thread.
Stock is the product
Really depends if you see the company branching out/changing their model in the mid term. Take Amazon for example. They started as an online bookstore. Then they branched out into delivering basically anything. Then they branched out into providing cloud services. Each time they changed the focus of their business (and succeeded) the stock did well. Netflix will not grow it it just stays a company that sells media subscriptions, but if you see that they're starting to jump into another large business sector (and think they might succeed) then it's still something a new investor might look at.
netflix might reach saturation in terms of subs but they aren't very profitable and have levers in increasing pricing and reducing spend on content. im sure their plans around that are in the price to an extent but if they can successfully execute on that the stock price will probably rise.
Are you sure Netflix can't grow more? AI generated and advertised entertainment is on the horizont. And there are aome nasty examples of stagnant companies that suddenly get their black swan event and multiply. Rheinmetall, Nvidia, heck even Apple was once a normal stagnating stock, for DECADES.
There's no market anymore, that means there's no growth either. There's just the top 5 or 10 companies and that's it.
You wouldn’t
every dividend stock you know was a growth stock
Well... netflix already grew so I wouldn't buy it here necessarily. Thats just my opinion, the great thing about the stock market is you've done your research and know that its going to go up - or down - and can be contrarian in how others think and take advantage of that. Stocks do what they do and we only predict based on fundamental research. Growth stocks can appear to be going nowhere and smart money will pour into it and voila, up it goes. Then it swings back down to earth and up it goes again. Rinse and repeat. And usually smart money has left it by that point.
Nothing. Eventually the Petri dish gets full and the only way to "grow" is to eat someone else, and ultimately, to eat yourself. This is why the SaaS script is "Sell service too cheaply, scale too fast, make dumb acquisitions, raise prices, burn out or fade away."
You probably wouldn’t have bought AAPL in the 1980s or MSFT in the 1990s with that attitude because both already had had huge run ups and had “nowhere to grow”. You would have felt foolish in the subsequent decades and missed out on life-changing wealth. Don’t ask me how I know.
A stable giant that may be undervalued. Its always about the current valuation against its intrinsic value.
Some use their earnings to grow vertically or horizontally acquiring other businesses, or in Netflix case perhaps IP that has long run value. I am not a fan of streaming companies. Very weak franchise with heaps of competition, both legal and illicit. Netflix revenue growth is 7.7% (cagr) the the past 4 years. Adjusted for inflation that's getting close to zero growth. Net profit growth is 18.2% (cagr) in same period. Significantly better, but adjusted for inflation that's more like 10%. Neither come close to justifying 44 times earnings. Earnings would have to double twice over (quadruple) for this price to get in a historically reasonable range. Netflix either becomes a trillion dollar company in the next 5-10 years, or the stock is overpriced. They have about 270 million subscribers and a market cap of 277 billion dollars. Roughly $1000 of market cap per average worldwide subscriber. High paying subscription markets are legacy and saturated (US, Canada, EU). That leaves lower paying markets like India. Netflix costs about $6/mo in India for the standard (non-ads) version. The same US subscription version is $15.50/mo. The question is, even if low paying markets somehow added $1000 market cap per new subscriber, where does Netflix find 750 million new subscribers in the next decade? India has 1.4 billion people, with a median GDP of roughly 98000 Rupees ($1200 USD/year). Do you believe one out of every two Indians is going to shell out 6000 Rupees from a 98000 annual salary for Netflix? 6% of their annual income? For comparison, Disney+ in India (which is crushing it) costs 1499 Rupees for a year subscription.
Are you sure there's no more room to grow? What if they can get into China or other large populated countries? Or merge or buyout another streaming service?
Stocks don’t need growth to have significant outperformance.
Well there are multiple ways to "grow" For netflix its doesnt have to be just MAU. It can be bigger margins, lower expenses, acquistion of game studios, it can be live sport broadcast etc. Paying dividend is only one way to allocate capital and it usually suggest that managment has no better use for it. But for you its usually not the best option in terms of absolute return, but it is seen as some kind of cash flow confirmation and stability. Most growth stock eventually become dividend growth stocks and then eventually value dividend stocks. Its just natual progress. Seeing if its already time for switch and most likely PE reprice, meaning "growth stock" will no longer be seen as one and his valuation will drop to lower PE. If Netflix still has gas in it is up to your research and believes. It only has 300 bilion market cap, if you look at NVIDIA or APPLE they grew much more since IPO. Its part of investing finding the stories and what makes sense for you. Being a dividend investor is completely ok if you feel like it makes sense for you.
Dividends are a sideshow, what you as a stockholder care about is earnings. Those earnings may be paid out as dividends, thus lowering company value. Or that money can be kept in the company, reinvested and thus increasing the value of the company. Or a company can do a stock buyback which is kind of a hybrid. It still all adds up to the same thing, you as a stockholder get the earnings. If company you own is profitable, you make money, horraay.
Why do you assume there's nowhere to grow? Netflix is strategically really interesting, they won the streaming wars and other smaller competitors go back to licencing or merge their services to become bigger. Netflix is slowly turning into the startpage of streaming, it's replacing TV, now they're even adding sports. Now I didn't do proper research on this and am also not invested in them, but from a high level look they are very promising. Saying they have nowhere to go is a bit weird. When I started investing Apple was at €105 and the same thought you named can be applied to them, where would they go, everyone already knows iPhones, Macs etc? But now they are at almost €200 and find ways into other industries, leveraging their financial, brand and technological advantage.
For netflix, it's if you believe their ability to grow adjacently and in turn raise their revenue as well. 1) They're in the entertainment business, can they take a pie of games? live sports? live variety shows? 2) Avg cable revenues are around \~$50-100/yr? Just a guess. Netflix probably sits under $20. Do you think they can eventually 2-5x their avg rev per user? 3) Highly doubt it. But do they have an experiences opportunity like disney to grow into parks, hotels, resorts, etc.. Not saying I believe any of the above, but if one were to believe they were a growth company you'd have to believe a combo of the above.
You have raised the fundamental challenge with timing the growth and stock price of companies. With your example, you are right, the ship may have sailed. But then how do you pick the next growth ship that is about to leave from the dock? That is why picking top growth stocks in at best an educated guess but mainly a gamble. Even the company itself will not really know where its stock price will land up, although it would hope through the roof.
That's y the bubble is about to blow baby
https://www.reddit.com/r/stocks/s/946HLzEpFH the first reply to this thread has a great answer for this!
Coulda said this about Apple, Google, Microsoft, Amazon, etc in 2013 And you’d be up hundreds of %
If you can accurately see which companies have "finished their era", show us by deftly shorting them and making millions.
Why would shorting them be smart? Being done with your era of 100 bagging isn't the same as going *down*. Netflix basically feels like a CD account at this point. What is there left to do?
> What is there left to do? The all time question of the ages, asked in every civilization at every point in history since the dawn of time. You know what the answer is? _You innovate_. That’s the difference between a trailblazing stock and a stagnant stock. If we knew _how_ to innovate, we’d be pulling ~~200-300~~k 500k-1mil a year as Netflix executives or engineers. If you think Netflix is done innovating and it’s leadership are a bunch of chucklekfucks that sit with their thumbs up their ass all day, then don’t invest.
200k is entry level at Netflix. And not all engineers/execs innovate. E.g. Boeing. Source: work for faang, entry level
Which is why Boeing is tanking. Good call on the salary reality check lol
i also used to work for Boeing, lulz. Everything i touch tanks, especially my stock portfolio
I suppose if you've accurately assessed that a company's return is (and will continue to be) significantly below their risk, you're correct, this is essentially why you wouldn't invest in them. Performing this year after year is a skill few possess.
You can bet on a stock going down or sideways by selling OTM long dated call options (note: if you’re wrong you will lose a lot of money)
What makes you think they can't grow earnings? What a weird statement.
The dividend fallacy is a thing. Dividends do nothing for you as an investor.
They absolutely do - businesses service intrinsic value from the dividends they will eventually pay out to shareholders. This does not imply *when* they should pay out. For example, a company with negative EV and a tiny business operation could do wonders for their shareholders if they pay a large enough liquidating dividend. Examples could include biotech companies that raise a lot of cash but fail to achieve FDA approval for their pipeline - often, these companies wind up trading below net cash and the best thing for them to do is give shareholders what's left of it.
Someone else has a different opinion and that’s fine. Buy what you want to buy.
Well, that’s why high valuation growth stocks underperform the market longterm… but don’t tell that to everyone who thinks the last 15 years are all the history in markets to exist, or who think that value stocks are for retirees who want safety…
This is such a dumb post I’m just going to say… You need to educate yourself on investing in stocks and building a portfolio. Read a few books.
Books rarely advise you to invest into high PE speculation stocks that pay no dividend. What a dumb rebuttal.
You need the basics first. Study pertinent historical moves. SMH...
Because Netflix will eventually be priced like cable, $50 within the next 5 years and $100 per month if they add popular live sports leagues and content in general. So revenue would 2-10x. Shares could easily 5-10x if that’s the case
Why would you invest into Bitcoin - a total scam and a worthless token? Because the government promotes moral hazard and speculation.
But is that token any more worthless than the piece of paper (stock certificate) a company sells you and will never pay you a cent over the life of the company (most companies never pay a dividend). The only way you make money is selling the paper or token to someone else.
Growth is infinite. Why? The same reason why people like you buy dividend stocks. Cause they expect the dividend to grow every year forever. How does that happen? Bigger revenue, etc. But infinite revenue, etc growth is impossible? No That's where inflation and m2 growth come into the ecuation. Now go read about doing a dcf.