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At an Berkshire Hathaway annual shareholder assembly, Warren Buffett made the next commentary about Apple and the way in which its clients take into consideration its merchandise:
Perhaps I’ve used this instance earlier than, however should you discuss to most individuals, if they’ve an iPhone they usually have a second automobile, the second automobile prices them $30 or $35,000, they usually had been advised that they by no means might have the iPhone once more, or they may by no means have the second automobile once more, they might quit the second automobile. However the second automobile price them 20 instances [more than the iPhone].
This reveals quite a bit about the way in which Buffett thinks about investing in companies like Apple. And there’s one other firm that I believe lots of people really feel the identical approach about.
Netflix
Within the final 12 months, Netflix (NASDAQ:NFLX) has stopped reporting subscriber numbers in its quarterly updates. However I believe it is perhaps in an identical place to Apple.
The historic information, although, signifies that lots of people are very reluctant to surrender their Netflix subscriptions. Perhaps even to the purpose that they’d quite quit their second automobiles.
| Yr | Variety of subscribers |
|---|---|
| 2024 | 301.6m |
| 2023 | 260.28m |
| 2022 | 230.7m |
| 2021 | 221.84m |
| 2020 | 203.66m |
There have been a few decreases in subscriber numbers – particularly throughout the first two quarters of 2022. However there are a few essential issues to remember.
One is that this would possibly properly have been as a result of unusually sturdy demand throughout the Covid-19 pandemic normalising afterwards. Subscriber progress has recovered strongly since then.
One other is that – Buffett’s observations however – Apple’s iPhone gross sales fell on the finish of 2023 and the beginning of 2024. So it isn’t as if demand for the agency’s merchandise by no means falters.
The purpose is, even when inflation has been excessive, Netflix subscribers have typically prioritised its service of their family budgets. And that places the corporate in a really sturdy place.
Spectacular power
I’ve been very impressed with how resilient Netflix has been. I believe it’s proven itself to be a beneficial service for its clients.
That’s significantly eye-catching given the challenges the enterprise faces. Updating its content material library requires ongoing funding from the enterprise and outcomes will not be assured.
Chair Reed Hastings has repeatedly acknowledged that predicting what is going to resonate with viewers is extraordinarily troublesome. And which means there’s at all times a danger with the corporate.
Given this, Netflix’s constant progress – each when it comes to subscribers and when it comes to revenues and income – could be very spectacular. And in some methods, it’s much more engaging than Apple.
Whereas iPhones have turn into dearer, Netflix has launched its ad-supported platform. Because of this, it’s capable of cost its viewers much less, which additional reduces the chance of them leaving.
I’m a giant fan of companies that maintain their costs low – I believe it makes for a sturdy aggressive benefit. So I’m within the inventory, however ought to I purchase it now?
Time to purchase?
Netflix shares at present commerce at a price-to-earnings (P/E) ratio of round 61. Even for a enterprise as sturdy as this one, I believe that’s fairly excessive.
My sense is that I’ll get a greater alternative to purchase the inventory sooner or later. However within the meantime, I’m going to be following intently to ensure I’m prepared when the time comes.
