Tech Newsround – Apple & Netflix

Netflix – Stuck in the doldrums

• Netflix has paid the price for its pandemic bump with a disappointing set of results that will keep the shares in the doldrums (like Amazon and others) until the valuation catches up.
• Q1 2021 subscribers / revenues / EPS were 208m / $7.2bn / $3.75 which was a miss on subscribers where the company had guided for 210m but a significant beat in terms of profits with EPS forecasted to be $2.97.
• Furthermore, Netflix expects that Q2 2021 will see a flat customer base in North America and highlighted that the after-effects of the pandemic were still making it difficult to forecast performance.
• The shares fell around 10% in after-hours trading towards the bottom end of the trading range that has been established since the middle of last year.
• This is a clear indication that the share price has nothing to do with the fundamentals and remains driven purely by a narrative as the company just earned 26% more profits for shareholders than expected but the shares fell by 10%.
• However, I think that this is now beginning to change for a number of the narrative stocks as their growth story evaporates and the focus begins to switch back to fundamentals.
• With the share price action last night, the shares are now meaningfully cheaper than they were before this report but still above what I would consider fair value.
• Netflix, Facebook & Amazon have now firmly established a trading range and for the next few years, I think they are likely to bounce around but effectively go sideways.
• This will result in the valuation catching up to the share price at which point the share price will be able to perform in line with fundamentals.
• For investors, these stocks are not attractive for now but for those with the ability to trade the range, there is money to be made.

Apple – All about M1.

• Apple held its spring event which was mostly about pushing its M1 processor out more widely across its range as well as putting Tile out of business.
• Most significantly Apple launched a new iPad Pro which instead of using the iPhone processor line has been migrated to the M1.
• This is a further move towards the full harmonisation of Apple’s ecosystem on a single processor and may one day result in Mac OS, iOS, iPadOS, tvOS becoming simply very minor variants of a single master code line.
• At the same time, Apple pushed the M1 into the new and colourful iMacs in a sign that its entire product line will be steadily migrated over to this chipset family.
• The higher-end Macs will be the last to go as they will require slightly different processors that use more cores running in parallel to ensure the best performance, but this migration is completely on track and is proceeding almost flawlessly.
• Apple also released AirTags which are small, coin battery operated, devices that one attaches to one’s keys or other objects that makes them easy to find with any device within the Apple ecosystem.
• Apple is pricing these competitively with Tile which will now have to fight hard to keep its iPhone-using customers from defecting.
• Globally, Apple is only covering about 14% of the opportunity, leaving the other 86% (Android users) available for the established tag industry.
• This was a steady update from Apple but there were no real surprises that will drive the shares to break out of their current range.
• This is another example of a share where the company needs to grow into the valuation before there will another meaningful rally.