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At an Berkshire Hathaway annual shareholder assembly, Warren Buffett made the next commentary about Apple and the best way its clients take into consideration its merchandise:
Perhaps I’ve used this instance earlier than, however when 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 have been informed that they by no means may have the iPhone once more, or they may by no means have the second automobile once more, they might hand over the second automobile. However the second automobile value them 20 occasions [more than the iPhone].
This reveals so much about the best way Buffett thinks about investing in companies like Apple. And there’s one other firm that I feel lots of people really feel the identical method about.
Netflix
Within the final 12 months, Netflix (NASDAQ:NFLX) has stopped reporting subscriber numbers in its quarterly updates. However I feel it is perhaps in an analogous place to Apple.
The historic knowledge, although, signifies that lots of people are very reluctant to surrender their Netflix subscriptions. Perhaps even to the purpose that they’d reasonably hand over their second automobiles.
| 12 months | 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 in the course of 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 consequence of unusually robust demand in the course of 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 robust place.
Spectacular power
I’ve been very impressed with how resilient Netflix has been. I feel it’s proven itself to be a priceless service for its clients.
That’s notably eye-catching given the challenges the enterprise faces. Updating its content material library requires ongoing funding from the enterprise and outcomes are usually not assured.
Chair Reed Hastings has repeatedly said that predicting what is going to resonate with viewers is extraordinarily tough. And meaning there’s all the time a threat with the corporate.
Given this, Netflix’s constant progress – each when it comes to subscribers and when it comes to revenues and earnings – may be very spectacular. And in some methods, it’s much more enticing than Apple.
Whereas iPhones have grow to be costlier, 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 an enormous fan of companies that maintain their costs low – I feel 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 robust as this one, I feel 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.
