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Wanna see what a full blown network effect looks like, kidos — check out Netflix earnings. More Subscribers ⤵️ More Revenue ⤵️ More $$ for Original Content and Licensing ⤵️ More bids won against networks ⤵️ More content on Netflix ⤵️ More Subscribers
Strictly speaking, these are scale economies, not network effects.
The entire stock market feels like its in a bubble. Netflix stock gained more than 25% in the past one month. Their free cash flow (FCF) has been negative every single quarter and will be for many quarters to come. Stocks trade based on discounted cash flow(DCF). Netflix however produces no material return for investors and still majority of the analysts keep putting higher and higher price targets, its like they are…
A lot of sophisticated financial people share your thinking. The problem is there's no growth to be found anywhere. People are cheering for 3% GDP growth in the US. Interest rates are at all-time historical lows, meaning discount rates are lower than they've ever been. These macro trends have added up to an environment where people are willing to pay staggering premiums for even a remote shot at growth. It's affectin…
Honestly, though, it's a great time to be young and taking chances. Resources to become an entrepreneur have never been more plentiful/cheap, and the current business environment is incredibly favorable. For now, anyway.
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Amazon has had positive free cash flow every year since 2001. Netflix has had free cash flow of -$53 million, -$840 million, -$1.6 billion, and -$2 billion in the last 4 years respectively, and their debt has grown to $5 billion.
Exactly, Amazon also has lot of assets. They have logistics networks across multiple countries, warehouses, data centers, etc. May not be commensurate to their market cap but it does give them a solid moat.
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> if you look at amazon they have never generated cash relative Isn't this one of those big Amazon myths? I thought the truth was that the income has always been there but it's the constant reinvestment that has kept profits low?
That's how people justify investing in Amazon. But I don't know how they think Amazon can just stop reinvesting one day and make money. Every business line Amazon has is hyper competitive. Can Amazon actually raise prices in any of their businesses?
They have been for some time. Prime memberships, AWS pricing, etc. The lines are "competitive" but Amazon is so far ahead in most that it doesn't matter.
The entire stock market feels like its in a bubble. Netflix stock gained more than 25% in the past one month. Their free cash flow (FCF) has been negative every single quarter and will be for many quarters to come. Stocks trade based on discounted cash flow(DCF). Netflix however produces no material return for investors and still majority of the analysts keep putting higher and higher price targets, its like they are…
A lot of sophisticated financial people share your thinking. The problem is there's no growth to be found anywhere. People are cheering for 3% GDP growth in the US. Interest rates are at all-time historical lows, meaning discount rates are lower than they've ever been. These macro trends have added up to an environment where people are willing to pay staggering premiums for even a remote shot at growth. It's affectin…
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CDNs will reduce bandwidth costs per user to essentially nothing. Content creation is the lion's share of their costs.
Biggest CDN charge $9 per 1TB of transfer... how is watching 20TB per month worth less than netflix fee so that they actually make some profit?
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Strictly speaking, these are scale economies, not network effects.
That is orthogonal to the network effect you see at play here, not contradictory
To illustrate, if Netflix were boundlessly funded in their early days, they could create a product that's just as valuable as it is today, even though they had no customers, and therefore no network effects.
The one caveat is that friends talking about shows with each other does create real network effects, but not what you're describing here.
Cheers
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Amazon has had positive free cash flow every year since 2001. Netflix has had free cash flow of -$53 million, -$840 million, -$1.6 billion, and -$2 billion in the last 4 years respectively, and their debt has grown to $5 billion.
Exactly, Amazon also has lot of assets. They have logistics networks across multiple countries, warehouses, data centers, etc. May not be commensurate to their market cap but it does give them a solid moat.
They also have a worldwide CDN capable of delivering high definition video around the world.
And lastly, they have 20 years of movie viewing history. Their prediction models alone are probably worth many billions to the movie studios.
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> if you look at amazon they have never generated cash relative Isn't this one of those big Amazon myths? I thought the truth was that the income has always been there but it's the constant reinvestment that has kept profits low?
That's how people justify investing in Amazon. But I don't know how they think Amazon can just stop reinvesting one day and make money. Every business line Amazon has is hyper competitive. Can Amazon actually raise prices in any of their businesses?
Earlier quoted context omitted.
Biggest CDN charge $9 per 1TB of transfer... how is watching 20TB per month worth less than netflix fee so that they actually make some profit?
at the scale netflix transfers data they pay much much less than this. They also do direct peering and will put boxes in your ISP datacenter - https://openconnect.netflix.com/en/