Sometimes, you watch an interview and it rocks your entire investment world. That's what happened last week, when I watched David Faber's interview with Liberty Media (FWONA) Chairman John Malone.
It's very rare that there is an executive as comfortable in his skin that he can speak his mind about so many companies. Most insist that they can only speak about their own company. They fear talking about others, I believe, because they aren't confident and they fear what happens when they favor one company and slight another.
Malone is not one of those executives.
Last week he talked about how Amazon (AMZN) is the Death Star that can take on anyone. "If you're in the B2C business, if you're selling anything to any consumer anywhere on the planet right now, you gotta believe that Amazon is gonna have a look at that opportunity -- to commoditize you, to use scale to sever the public," Malone told David. "He's reducing the cost to the consumer and providing great convenience."
That's one of the reasons, for example, I think the big drug stores are so vulnerable. We all know they are inconvenient, with a counter filled with clerks, not pharmacists, who are always doing something in the back and never come out. Who needs them and their high prices? If you Amazon Prime because a buying group for drugs and if doctors could enter their scrips in the cloud, you could get your prescription delivered to your door, no lines, lower cost.
You are talking about the death knell of CVS Health (CVS) and Walgreen's (WBA) , because they are already selling goods that are too expensive up front, namely food, which Amazon now has under control with Whole Foods. Watch the latter, by the way, have a big Thanksgiving with organic turkeys from The Hain Celestian Group (HAIN) .
But equally important, at least for stock picking, in that conversation with Malone were his comments about Netflix (NFLX) . Fueled by money from the stock market and payments by the major studios, CEO Reed Hastings decided to build a platform that traveled, that was never just domestic like HBO, which can syndicate to foreign distributors, but can't control pricing or get the artificial intelligence it needs to satisfy the customers. It's a built-in edge that Netflix has that allows it to scale.
Not only that, but because Hastings is willing to cut deals with directors that allow them to have far more freedom than the studios allow them to have, Netflix will beat anyone trying to scale.
That's why Malone said "it's way too late" for the cable companies to band together to stop Netflix.
Which brings me to valuation. Many marvel that Netflix could have a market cap of $83 billion, which so exceeds CBS at $22 billion or Twentieth Century Fox FOXA at $57 billion. While I could argue that both of those two companies are undervalued and it is reasonable to think that either could get a bid in this environment, I question why the stock of Netflix couldn't have an even higher valuation than $83 billion.
Do we really think an international distribution company with local artificial intelligence and the ability to generate programming with that AI can only be worth $83 billion? Why would we think that it's worth only that? Because it is too big to be bought?
I think Malone is saying, in his own roundabout way, that Amazon and Netflix have the ability to defeat anyone, and that's in large part because of scale and an informational edge that allows them to use their considerable artificial intelligence, versus the lack of customer touch internationally by HBO, to dominate.
I come down squarely, after watching that interview, in believing that the appeal for Netflix as a stock isn't outrageous, given its current price tag. If anything, it's cheap here, and most likely, therefore, to go higher.