Netflix's $2 Billion Debt Offering Is Nothing to Be Worried About
Six months after selling $2 billion worth of debt, Netflix (NFLX) is selling another $2 billion. With Netflix already having $10.3 billion in debt (and $3.3 billion in cash) at the end of March, the offering stands to raise the company's total debt load to $12.3 billion.
It isn't too shocking that Netflix is raising fresh debt: Bond markets have rallied strongly this year, and in last week's Q1 report, the company guided for full-year free cash flow (FCF) of negative $3.5 billion (a little worse than prior guidance), and also reiterated it plans to continue relying on debt to address its capital needs.
However, with Netflix currently sporting a $168 billion market cap, its debt-to-market cap ratio remains comfortably below 0.1. Just as importantly, Netflix, whose cash content spend topped $13 billion last year and is expected to be higher this year, is only burning cash because it's choosing to: The company could quickly turn cash-flow positive by lopping a few billion off its annual content spend. But it is opting to keep its foot on the pedal in the name of driving user growth and long-term customer loyalty and pricing power.
During its Q1 earnings interview, Netflix reiterated that it expects its cash-flow profile to "meaningfully" improve in 2020, and then each year afterwards. And both CEO Reed Hastings and CFO Spencer Neumann suggested that Netflix's debt-raising days won't last too much longer.Given what Netflix's finances and revenue growth currently look like, there's no reason not to take them at their word.
Waymo's Detroit Plant Points to Big Plans for Its Taxi Business
Alphabet's (GOOGL) Waymo says it plans to use a Detroit plant to create self-driving cars -- specifically, retrofitted Jaguar I-Pace electric SUVs and Chrysler Pacifica hybrid minivans -- for its fleet. Up to 400 workers will be employed at the facility, which is expected to be up and running by mid-2019.
Last year, Waymo announced the Jaguar Land Rover would supply it with up to 20,000 I-Paces for its self-driving fleet, and that Fiat Chrysler (FCAU) would supply it with up to 62,000 Pacificas. And towards the end of the year, Waymo launched a driverless taxi service available to a limited group of consumers in the Phoenix area.
Though it could be a while before Waymo buys as many as 82,000 cars for its fleet, the Detroit plant is a fresh sign that the company has big ambitions for its driverless taxi business. While General Motors' (GM) Cruise self-driving unit has said it wants to launch a taxi service in San Francisco this year and Tesla (TSLA) (true to form) just made big promises for a driverless taxi service it says will launch next year, for now Waymo, aided by a decade of large R&D investments, is the only player to have gotten a commercial service of some kind off the ground.
Waymo, which was reported in March to be courting outside investors such as Volkswagen, has had a hard time striking deals with automakers to use its technology in cars sold to third parties, due to fears that automakers have about surrendering control of R&D and the user experience. But there's little denying at this point that Waymo's technology base -- from its hardware to its self-driving algorithms to its maps -- is quite valuable. And since Waymo is losing money for now, Waymo's value to Alphabet doesn't get accounted for when valuing Alphabet solely based on its near-term earnings.
Twitter's Q1 Earnings Report Isn't All Roses
Twitter (TWTR) is up over 16% after reporting Q1 revenue of $786.9 million (up 18% annually) and adjusted EPS of $0.09, topping consensus analyst estimates of $774.5 million and $0.04. Second quarter revenue guidance isn't quite as strong -- Twitter expects revenue of $770 million to $830 million versus a consensus of $818 million -- but the company does have a history of guiding conservatively.
Monthly active users (MAU) fell by six million annually to 330 million, after having dropped by nine million annually to 321 million in the seasonally weaker fourth quarter. On the flip side, monetizable daily active users (mDAUs) -- a metric that Twitter began breaking out with its Q4 report -- grew by 14 million annually to 134 million, after having grown by 11 million annually in Q4.
Twitter's ad business executed pretty well in the U.S., where ad revenue rose 26% to $363 million. But it didn't do as well in the international markets that contain almost 80% of its MAUs: International ad revenue rose just 10% to $317 million (excluding forex swings, it rose 14%). The "Data Licensing & Other" segment continues chugging along, with revenue rising 20% to $107 million.
I've argued for a while that Twitter has failed to crack the code on appealing to a larger base of social media users the way that Facebook (FB) proper and Instagram have, and the company's ongoing MAU declines suggest that its much-discussed efforts to improve content discovery and cut down on bad behavior haven't changed this fact. However -- though this number is still far below the numbers claimed by Facebook and Instagram -- the company has had some success in growing the number of users who view Twitter as a daily habit.
Meanwhile, the company's ad sales figures suggest that in the U.S. at least, it continues making headway in terms of better monetizing its user base with the help of its video ad offerings and (though there's still some room for improvement here) improved ad targeting. Anecdotally, Twitter has gradually gotten better at using things such as location and user activity/interest data to deliver targeted ads. However, the company also appears to have meaningfully increased its U.S. ad load (the number of ads shown during a given amount of content viewing), and it's fair to wonder how much more U.S. ad load can grow without hurting usage.
Overall, it's understandable that markets were pleased with Twitter's latest earnings report. But with shares now trading for about 7.5 times Twitter's expected 2020 sales and about 30 times their expected 2020 free cash flow, the size of its post-earnings jump looks excessive.
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