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Why Netflix Will Be The Next $100 Billion Internet Company

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Why Netflix Will Be
The Next $100 Billion
Internet Company
Gil Simon │ May 7, 2015
2
This presentation is being furnished to you on a confidential basis to provide information and
analysis. The material presented is for general discussion, illustration and informational purposes
only. The opinions expressed herein are based on the current judgment and opinions of Apex
Capital, LLC as of 05/05/2015 and are subject to change without notice. References herein to
future revenues, earnings or share prices of Netflix, Inc. are included for discussion purposes only
and should not be construed as predictions. Actual revenues, earnings or share prices could differ
materially from those shown herein. Although the information shown was prepared using sources,
models and data believed to be reasonably reliable, its accuracy and completeness cannot be
guaranteed, and Apex assumes no responsibility or liability for any of the information herein.
Apex Capital, LLC is an investment advisory firm that serves as the investment manager of
investment funds. As of the date of this presentation, those funds currently own common shares of
Netflix, Inc. The material presented is not to be construed as investment advice or as a solicitation
to invest in any security, or, directly or indirectly, as a solicitation (on behalf of Apex Capital, LLC or
another party) to act as proxy for a security holder or any form of consent or authorization. This
Presentation does not constitute an offer to sell or a solicitation of an offer to buy any interests in
any Apex Capital, LLC funds. Any offer or solicitation may be made only by the confidential offering
memorandum of each fund which may be obtained from the funds’ administrator Citco.
Additional information about Apex Capital, LLC is available from the firm and in its disclosure
documents that are available on the Investment Adviser Public Disclosure web site
(www.adviserinfo.sec.gov).
This presentation may not be excerpted from, summarized, distributed, reproduced or used for any
purpose without the written consent of Apex Capital, LLC.
Disclaimer
Netflix: Proving the Naysayers Wrong
Why NFLX could be a $2,000 stock
Bears Say…
NFLX is a niche service facing significant
competition
Already one of the world’s largest media
subscription services, NFLX is watched 10-20x
more than its closest competitors
Content producers have all the leverage while
NFLX is just a distributor ripe to be squeezed
International growth will disappoint due to
entrenched competition and differing media
consumption habits
NFLX is a great service, but its financial results
will never justify its current price
NFLX’s global scale and growing checkbook
positions it as the buyer of choice for premium
licensed and original content
The desire to consume Hollywood content is
universal, and strong adoption in its early
international markets has given NFLX the
confidence to accelerate its global rollout
The company’s global subscription model along with
eventual pricing power will translate into profitability
well beyond consensus expectations
Says…
NFLX is an overvalued content
distributor with too many competitors
to meet lofty expectations
NFLX is quickly becoming one of
the most powerful media companies
in the world
We expect global subscribers to approach 150m by 2020
NFLX Has Tripled Its Subscriber Base in 3 Yrs.
Streaming Subscribers (millions)
2012 2013 2014 2015 2016 2017 2018 2019 2020
0
25
50
75
100
125
150 International Domestic
Already watched by ~45% of U.S. broadband households!
Source: Company filings and Apex projections
Global Rollout Continues to Ramp
Management expects international to eventually represent
2/3 of total subscribers
Canada
2010
Latin
America
2011
Australia
New Zealand
Japan (Q3)
20152013
Netherlands Germany
France
Austria
Belgium
Switzerland
Luxembourg
2014
UK
Ireland
Finland
Denmark
Sweden
Norway
2012
International expansion expected to be largely complete by YE2016
2016
ROW
6
Netflix is Already The Scaled OTT Provider
Viewed 14x more than
closest OTT competitor…
…and 10x more than HBO
at a fraction of the price
Share of U.S.
downstream traffic in
peak evening hours1
Minutes watched
per household
per day2
1. Sandvine 2H 2014 Global Internet Phenomena; 2. Rentrak Q1 2015 data; 3. Amazon Prime annual rate on a monthly basis; 4. HBOGo free with linear subscription
Price/Mo: $8.99 $8.253 $7.99 $14.994
2.6%
1.4% 1.0%
34.9%
Price/Mo: $8.99 $14.99
111
12
14x 10x

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Apex Capital, LLC - Why Netflix Will Be The Next $100 Billion Internet Company

  • 1. Why Netflix Will Be The Next $100 Billion Internet Company Gil Simon │ May 7, 2015
  • 2. 2 This presentation is being furnished to you on a confidential basis to provide information and analysis. The material presented is for general discussion, illustration and informational purposes only. The opinions expressed herein are based on the current judgment and opinions of Apex Capital, LLC as of 05/05/2015 and are subject to change without notice. References herein to future revenues, earnings or share prices of Netflix, Inc. are included for discussion purposes only and should not be construed as predictions. Actual revenues, earnings or share prices could differ materially from those shown herein. Although the information shown was prepared using sources, models and data believed to be reasonably reliable, its accuracy and completeness cannot be guaranteed, and Apex assumes no responsibility or liability for any of the information herein. Apex Capital, LLC is an investment advisory firm that serves as the investment manager of investment funds. As of the date of this presentation, those funds currently own common shares of Netflix, Inc. The material presented is not to be construed as investment advice or as a solicitation to invest in any security, or, directly or indirectly, as a solicitation (on behalf of Apex Capital, LLC or another party) to act as proxy for a security holder or any form of consent or authorization. This Presentation does not constitute an offer to sell or a solicitation of an offer to buy any interests in any Apex Capital, LLC funds. Any offer or solicitation may be made only by the confidential offering memorandum of each fund which may be obtained from the funds’ administrator Citco. Additional information about Apex Capital, LLC is available from the firm and in its disclosure documents that are available on the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). This presentation may not be excerpted from, summarized, distributed, reproduced or used for any purpose without the written consent of Apex Capital, LLC. Disclaimer
  • 3. Netflix: Proving the Naysayers Wrong Why NFLX could be a $2,000 stock Bears Say… NFLX is a niche service facing significant competition Already one of the world’s largest media subscription services, NFLX is watched 10-20x more than its closest competitors Content producers have all the leverage while NFLX is just a distributor ripe to be squeezed International growth will disappoint due to entrenched competition and differing media consumption habits NFLX is a great service, but its financial results will never justify its current price NFLX’s global scale and growing checkbook positions it as the buyer of choice for premium licensed and original content The desire to consume Hollywood content is universal, and strong adoption in its early international markets has given NFLX the confidence to accelerate its global rollout The company’s global subscription model along with eventual pricing power will translate into profitability well beyond consensus expectations Says… NFLX is an overvalued content distributor with too many competitors to meet lofty expectations NFLX is quickly becoming one of the most powerful media companies in the world
  • 4. We expect global subscribers to approach 150m by 2020 NFLX Has Tripled Its Subscriber Base in 3 Yrs. Streaming Subscribers (millions) 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 25 50 75 100 125 150 International Domestic Already watched by ~45% of U.S. broadband households! Source: Company filings and Apex projections
  • 5. Global Rollout Continues to Ramp Management expects international to eventually represent 2/3 of total subscribers Canada 2010 Latin America 2011 Australia New Zealand Japan (Q3) 20152013 Netherlands Germany France Austria Belgium Switzerland Luxembourg 2014 UK Ireland Finland Denmark Sweden Norway 2012 International expansion expected to be largely complete by YE2016 2016 ROW
  • 6. 6 Netflix is Already The Scaled OTT Provider Viewed 14x more than closest OTT competitor… …and 10x more than HBO at a fraction of the price Share of U.S. downstream traffic in peak evening hours1 Minutes watched per household per day2 1. Sandvine 2H 2014 Global Internet Phenomena; 2. Rentrak Q1 2015 data; 3. Amazon Prime annual rate on a monthly basis; 4. HBOGo free with linear subscription Price/Mo: $8.99 $8.253 $7.99 $14.994 2.6% 1.4% 1.0% 34.9% Price/Mo: $8.99 $14.99 111 12 14x 10x
  • 7. 2015+ 2014 2013 7 Content is King And Netflix has become the new kingmaker 2012
  • 8. 8 Consumers Already Love Netflix… 57% of the nearly 800 Netflix users queried said that, if forced to choose, they would keep Netflix over traditional pay TV; 49% reported spending more time watching Netflix than traditional pay TV. - From ClearVoice/FBR Survey Says Consumes Love It More Than TV by Barton Crockett, FBR 4/16/2015 Netflix is the 5th most popular network … [and] is now considered a must have channel right behind most broadcast channels and ESPN. - From A Proprietary Service of “Must See” TV by Marci Ryvicker, Wells Fargo 3/11/2015 And the service is only getting better
  • 9. 9 The Beauty of a Scaled Subscription Model Global Subscribers (millions) 100m 150m Average Subscription Price Implied Global Streaming Revenue $12 $14.4bn $15 $18.0bn $12 $21.6bn $15 $27.0bn Earnings Per Share1 $48.80 $65.06 $60.99 $81.33 $73.19 $97.59 $91.49 $121.99 @ 30% Operating Margin @ 40% Operating Margin $1,220 $1,627 $1,525 $2,033 $1,830 $2,440 $2,287 $3,050 @ 30% Operating Margin @ 40% Operating Margin Implied Share Price @ 25x 1. Assumes zero financial contribution from DVD segment, 30% blended global tax rate, and 62m shares outstanding Note: Q1 2015 domestic and international streaming contribution margins were 32% and -16%, respectively At 150m subscribers, each incremental $1 in price = $20 of EPS
  • 10. 3-Year NFLX Price Target: $2,000 “PAY ATTENTION TO THE FINE PRINT, IT’S FAR MORE IMPORTANT THAN THE SELLING PRICE” - Frank Underwood PAY ATTENTION TO THE FUNDAMENTALS, THEY SHOW FAR MORE OPPORTUNITY THAN THE CURRENT SHARE PRICE