Bill Nygren (Trades, Portfolio) of Oakmark appeared on CNBC Tuesday to talk about Netflix (NFLX, Financial), which reported earnings today.
Nygren said he views Netflix as a media company and not so much a tech company. He also views Netflix as a value stock, based on it being able to grow subscribers at 20% per year. (The stock is mostly valued based on subscriber count. Does this remind anyone else of 1999?)
The logic for the focus on subscriber growth is that Netflix with its subscriber headstart versus competitors is able to achieve higher ROI on content. Consequently, it can invest more in content that continues the virtuous cycle of higher subscriber growth.
Netflix has a great deal of content on its platform owned by other media companies like Disney. Next year Disney can contractually pull quite a bit of it. With Disney owning some key IP like Marvel characters and Star Wars, that can hurt.
Oakmark isn't worried because Netflix is so far ahead in subscribers it can achieve a better return on investment in its content. Netflix has a huge lead that is only getting wider.
Unsettlingly, though, the stock trades at a hefty earnings multiple:
Nygren's top holdings as tracked by GuruFocus include mostly more traditional value names: Citigroup (C), Alphabet (GOOG, Financial)(GOOGL, Financial), American International Group (AIG, Financial), Apple (AAPL, Financial), Fiat Chrysler (FCAU), Netflix (NFLX, Financial), Bank of America (BAC), CVS Health (CVS), General Electric (GE) and Ally Financial (ALLY).
Disclosure: No positions.
