Netflix Inc

We acquired a position in Netflix, a business we briefly owned in 2022 and have followed closely ever since. Netflix is the dominant global streaming platform with over 325 million subscribers, nearly double the combined base of its two closest competitors, Disney+ and HBO Max. Netflix has since effectively won the streaming wars. Its subscriber base now exceeds any competitor's by a wide margin, and that scale is self-reinforcing. Netflix can outspend rivals on content while spreading the cost across the industry's largest user base, improving both the value proposition for subscribers and profitability for the company. Looking forward, we expect Netflix to compound revenue at a double-digit growth rate, with content costs growing more slowly than revenue driving continued margin expansion. Combined with a robust buyback program, we estimate earnings should compound at close to 20% annually.

Netflix, Inc. continues to demonstrate strong fundamentals, reporting quarterly results that exceeded consensus expectations for revenue, operating income, free cash flow, and earnings per share. The company generated $12.3 billion in revenue, a 14% increase in constant currency, driven by higher subscriptions and ad revenue, which is projected to reach $3 billion in 2026. With over 325 million paid subscribers and a global audience nearing 1 billion, Netflix's competitive advantages include its scale, brand strength, and a vast library of original content, having invested over $120 billion in content over the past decade. Despite some short-term guidance concerns, our long-term investment thesis remains intact as Netflix's financial model continues to improve, evidenced by a 91% increase in free cash flow year over year.

Netflix, the streaming giant, experienced a share price decline despite strong organic growth driven by membership increases, higher pricing, and advertising revenue. The market reacted negatively to Netflix maintaining its 2026 guidance, raising concerns about future growth. However, the company demonstrated capital discipline by withdrawing from a bidding war for Warner Bros, signaling a return to its organic growth strategy focused on internal content investment. Netflix's resumption of share buybacks and its efforts to scale advertising capabilities, including AI-driven ad targeting, reinforce its position as a dominant, high-quality company generating strong cash flows.

Netflix (NFLX) underperformed during the second quarter as shares retraced a portion of their strong first quarter gains following an extended period of outperformance. The selloff was primarily driven by profit-taking and valuation compression rather than any meaningful deterioration in the company's underlying fundamentals. We believe the weakness reflects a normalization in valuation following exceptional performance rather than a change in the company's long-term outlook. Netflix should remain well positioned to compound earnings through continued subscriber growth, expanding advertising monetization, and disciplined capital allocation.

Netflix (NFLX) underperformed during the second quarter as shares retraced a portion of their strong first quarter gains following an extended period of outperformance. The selloff was primarily driven by profit-taking and valuation compression rather than any meaningful deterioration in the company's underlying fundamentals. We believe the weakness reflects a normalization in valuation following exceptional performance rather than a change in the company's long-term outlook. Netflix should remain well positioned to compound earnings through continued subscriber growth, expanding advertising monetization, and disciplined capital allocation.

Netflix has given up a lot of the gains following its rally after walking away from its bid for Warner Bros Discovery. This was driven by a combination of a more positive macro outlook and higher interest rates (Netflix is viewed as defensive) and limited near-term engagement growth in the US. We view the latter as largely a short-term issue driven by a strong sporting calendar and growth in engagement of short video due to improvements in algorithms. We continue to view Netflix as well-placed to maintain its position as the dominant streaming platform for professional content and grow profits strongly over the medium term.

During the quarter, we initiated one new position in Netflix, Inc. Netflix's flywheel, roughly 325 million paid subscribers funding about $20 billion in annual content spend, drives engagement, retention, and pricing power that is difficult for peers to replicate. With the Warner Bros. Discovery bid abandoned, capital-allocation risk is removed, and engagement, pricing, and advertising are converging into durable, multi-lever earnings growth.

Netflix was eliminated from the portfolio due to concerns about its maturing growth and intensifying competition. The company's shares lost value following its unsuccessful Warner Bros. bid and the departure of co-founder Reed Hastings from the board. These factors raised questions surrounding potential future mergers and acquisitions deals, leading to a reassessment of Netflix's growth prospects.

Netflix declined in the quarter. Despite reporting solid operating results, the stock came under pressure over concerns over decelerating revenue growth and margin compression. We believe that there was some confusion surrounding the pace of price increases, and we view margin compression as transitory, given the content amortization timing for live sports is front-end loaded in 2026.

We continue holding NFLX as we still view them as attractively valued. Despite being an underperformer this quarter, we believe Netflix Inc has a strong position in the market and remains a valuable asset in our portfolio. The ongoing developments in the streaming industry and Netflix's ability to adapt to changing consumer preferences reinforce our positive outlook on the company.