To The Moon

$Netflix(NFLX)$  Just a few years ago, Netflix's big content spending meant free cash flow was consistently negative. Fast forward a couple of years, and the company is measuring this cold, hard cash in the billions. The streaming-service specialist is at an inflection point when it comes to profitability -- and this inflection point will likely be even more evident going forward. Generating positive free cash flow is likely music to shareholders ears. It's been about 10 years since the company embarked on an aggressive strategy to invest in original content. A decade later, the once-risky strategy is now looking quite genius in hindsight. The company's content library now features many must-see films and shows, some of which have global appeal. Better yet, Netflix has now achieved the necessary scale to sustain its current output of high-quality content profitably. Here's a close look at Netflix's profits, despite continued aggressive spending on content. Free cash flow is soaring Netflix management revealed in its recent fourth-quarter update that it generated a total of $1.6 billion in free cash flow in 2022. This level is up from approximately breakeven free cash flow in 2021 and negative $3.3 billion in 2019, highlighting how this is an inflection point for the company. Notably, Netflix's free cash flow was $1.9 billion in 2020, but this was because many film studios paused production as the world dealt with the rapid spread of COVID-19. Looking to 2023, management is guiding for record free cash flow of "at least $3 billion," assuming no material swings in foreign exchange. Driving home just how impressive this outlook is, it comes even as the company plans to maintain its monstrous annual budget for content spending at around $17 billion. Even more, Netflix is ramping up a new advertising business, requiring new hires, technology, and incremental product-development costs. Shares are priced for near perfection While this inflection in profitability is good news for Netflix shareholders, the stock's move higher in recent months may have already priced in Wall Street's rosy outlook for the company. Netflix's $161 billion market capitalization at the time of this writing is equal to about 53 times the company's expected free cash flow this year. Even if 2024 free cash flow rose to $4 billion, the stock currently trades at 40 times this expected free cash flow. Fortunately, Netflix's launch of an ad-supported tier helps mitigate some of the risks to owning the stock, so the stock deserves a premium valuation. Management recently said it expects its advertising business to grow to more than 10% of revenue in the coming years, making it a big contributor to both top- and bottom-line results. This new revenue stream gives Netflix a larger addressable market than the company would have if it had remained a subscription-only streaming service. Nevertheless, investors should remember that the stock is already pricing in strong growth for years to come. While it's good to see the company hitting an inflection point in profitability, it doesn't necessarily make the stock a bargain at this level. Quoted

$Tesla Motors(TSLA)$  Tesla posted better-than-expected fourth-quarter net income. The stock is rising, but gains have little to do with the past. Investors liked what they heard from the company about the future. So did the Street. Wednesday evening, the electric-vehicles giant reported record net income and earnings per share of $1.19. Wall Street was looking for about $1.13 a share. Tesla (ticker: TSLA) stock rose 11% Thursday, hitting $160.27 a share. The S&P 500 and Nasdaq Composite were up about 1.1% and 1.8%, respectively. “Demand has been the biggest question entering 2023 after recent price cuts and fear of a macro slowdown,” wrote Baird analyst Ben Kallo in a Wednesday report. “Demand [is] still strong and outpacing production capacity.” Tesla plans to make about 1.8 million cars in 2023, up from about 1.37 million produced in 2022. CEO Elon Musk said on Thursday evening that orders were outpacing production two to one. All that was enough to sooth investors’ nerves. (Coming into Thursday trading, Tesla stock was down about 34% over the past three months.) Kallo rates Tesla shares Buy. His price target is $252 a share. Mizuho analyst Vijay Rakesh also rates shares Buy. His price target is $250 a share. Rakesh wrote that quarterly profit margins were better than feared in his Thursday research report. Profit margins were a concern for investors after Tesla offered discounts at the end of 2022 and dramatically cut prices at the start of 2023. Rakesh also pointed out that while prices are coming down, Tesla has cost offsets to help cushion the margin impact—including better utilization at two new manufacturing plants and falling raw material prices. “Management commentary suggest [gross profit margins] should remain above the 20% in a single quarter,” wrote Emmanuel Rosner in a Thursday report. The first quarter of 2023 is “positioned to be the trough for the year and margins incrementally improve throughout the year.” Tesla produced automotive gross profit margins of about 26% for all of 2022. Rosner rates Tesla stock Buy and has a $220 price target for the shares. Cowen analyst Jeffery Osborne rates shares Hold. He took his price target up to $140 from $122 after earnings. He still has concerns about falling vehicle prices and the impact on margins, but noted that Tesla’s energy storage business is looking better than he expected. Tesla deployed 2.5 gigawatt hours of battery storage capacity in the fourth quarter, up 152% year over year. BoA Securities analyst John Murphy also rates shares Hold. He called results mixed in a Thursday report, but raised his price target to $150 from $135 a share. “Stock appears fairly priced,” wrote Murphy, adding there is a lot of uncertainty faced by investors regarding the state of the global economy and Musk’s management of Twitter. Most of the Street seems fine with Tesla’s numbers. “Solid results and upbeat demand out of the gate,” is how Wedbush analyst Dan Ives characterized the quarter. He rates shares Buy. He took his price target to $200 from $175 after earnings. Tesla’s demand commentary was what bulls wanted to hear, added Ives. “The bears (for now) will go back into hibernation mode,” he noted. They will come out of hibernation soon. Next up for Tesla watchers is the company’s event on March 1. Topics will include the next-generation vehicle platform. That should be a lower-priced vehicle that can expand Tesla’s addressable market. Overall, about 64% of analysts covering Tesla stock rate shares Buy. It’s the highest Buy-rating ratio the stock has had, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The average analyst price target is about $206 a share. Quoted

$Walt Disney(DIS)$  The clock is ticking on Bob Iger. The former Walt Disney CEO that figured he'd enjoy a happy retirement of writing books and potentially pursuing political ambitions isback at the helmof the media giant. There's a lot to fix at the company, and it's easy to wonder if he'll be able to get everything done in two-year timeline he has established before stepping down again. I'll cut to the chase: I think Iger will still be CEO three years from now. Let me make an even more brazen market call, predicting that Disney stock will more than double in three years. The shares are down to roughly half of where they were at their peak two years ago, so let's see why I think that the House of Mouse can be hitting new highs by early 2026 (if not sooner). IMAGE SOURCE: DISNEY. What might the future hold? Let's assume what many market watchers consider to be obvious right now. The global economy will get worse before it gets better, and that's going to be hit to the gut of Disney as a consumer-facing titan. Advertisers will pare back their marketing budgets for the company's TV and streaming businesses. The iconic theme parks segment that set new records in fiscal 2022 will be challenged. Box office returns will continue the systemic decline that's been happening for two decades. Thankfully, the horizon is brighter than the pothole-filled road that lies immediately ahead. Let's start with Disney's media and entertainment distribution segment. Revenue rose 8% in fiscal 2022, as a 20% surge in its premium streaming business was enough to lift flat results at its legacy linear networks. Disney+ -- along with Hulu and ESPN+ -- now account for nearly a quarter of the company's total revenue. The sticking point here is that the direct-to-consumer streaming business served up an operating deficit of more than $4 billion in the last fiscal year. The red ink at Disney+ is the main reason why Iger is here and dismissed CEO Bob Chapek is not. When the platform launched three years ago, the goal was for Disney+ to become profitable by the end of fiscal 2024. With losses widening, it didn't seem likely. As Iger's primary objective, you have to like his chances of getting the balance right on the streaming end. It may not happen in two years, but three years from now we could be there. A recent price hike and the addition of an ad-supported tier should help Disney+ in the quest to add to the media giant's bottom line instead of subtract from it by early 2026. Ads will naturally come back to the market once consumers are spending again, and Disney's unmatched content catalog and franchises will continue to make it a desirable market for advertisers to reach. DespiteAvatar: The Way of Water becoming the first film since 2019 to top $2 billion in worldwide ticket sales, theatrical distribution will continue to be a challenge for Disney and its peers. The good news is that the company already has strong and established streaming platforms that will help offset any weakness at the local multiplex. Turning to Disney's theme parks business, the segment saved it over the past year as "revenge travel" became a thing. Folks paid a premium to get back to the leading theme park operator after scrapping vacation plans in 2020 and at least globally in 2021. This segment will see turnstile clicks slow this year if not next year if there isn't a soft landing to the mounting economic pressures, but Disney's gated attractions always bounce back. The interesting year for the theme parks will be 2025, when its largest rival in Florida opens Epic Universe at Universal Orlando. Disney will need a response if it doesn't want to squander market share at its largest resort. Iger hasn't said a lot about the future of Disney's theme parks business, but if he really wants to cement his legacy -- and be able to stay away for good this time -- it will have to be about more than just turning Disney+ around. It's too late for Disney to have a new park in Florida to compete against Epic Universe when it opens, but the plans will likely be in place by then to keep patrons close and shareholders even closer. Disney continues to be the class act of media stocks. Trailing revenue already exceeds its pre-pandemic peak of fiscal 2019. Analysts see adjusted earnings surpassing the all-time high of $7.08 a share it posted in fiscal 2018 by fiscal 2026. Getting the stock back above $200 in three years seems more than reasonable if Iger is largely successful this time. Quoted

$Tesla Motors(TSLA)$  Tesla bulls and bears fight over just about everything: Electric vehicle demand, autonomous driving technology, Elon Musk, competition from gas-powered cars, and more. The next front in their war: profit margins. Tesla(ticker: TSLA) slashed pricesat the start of the year, choosing to sacrifice a slice of its industry-leading profit margins to boost demand and protect market share. Over the past four quarters, Tesla‘s automotive gross-profit margin—excluding any benefit from regulatory credits— has averaged 28%, which is 19 percentage points better than Ford Motor (F) and 13 percentage points better than Toyota Motor (TM). Both sides realize the gross-profit margin is pulling in. But a risk for the bulls is that estimates for the number aren’t coming in fast enough. Analysts project a fourth-quarter margin of 25%, down from the third- quarter’s margins of almost 27%. Automotive gross-profit estimates for the first quarter and full year are now 22% and 23%, respectively. Those figures are too high, according to an analyst who is a Tesla bull.New Street Research’s Pierre Ferragu, who rates the stock Buy and has a $320 price target, projects margins of 20% for the first quarter and 22% for the full year. Ferragu expects Tesla management to “talk down” margins when the company reports fourth-quarter numbers on Wednesday. The message might pressure shares, but Ferragu expects things to improve throughout the year as costs fall. Quoted

$Advanced Micro Devices(AMD)$  shares jumped higher Monday following an upgrade from Barclays that looks to extend last week's chip sector rally. Barclays analyst Blayne Curtis lifted his rating AMD to 'overweight', with a $15 improvement to his price target, now pegged at $85, citing the chipmaker's lead over rival Intel in the server market following the launch of its new data center product Genoa late last year. CEO Lisa Su said Genoa will translate into "lower capex, lower opex and lower total cost of ownership" for enterprises and for cloud data centers. "Intel won't have an answer until Granite Rapids/Sierra Forest, which is slated for 2024 but more likely arrives in 2025," Curtis wrote, referring to that chipmaker's 6th generation Xeon platform and its new, parallel -developed Xeon CPU. Curtis also said AMD could see the potential for it to build gains from Meta Platforms when it accelerates spending later this year. AMD shares were marked 2% higher in pre-market trading, following on from Friday's 3.5% advance, to indicate an opening bell price of $71.45 each. The Philadelphia Semiconductor index, the chip sector benchmark, rose 3.11% on Friday to extend its January gain to around 10.4%. Late last year, AMD posted modestly weaker-than-expected third quarter earnings of 67 cents per share, on revenues of $5.6 billion, but noted solid gains for its gaming and data center businesses that partly offset further weakness expected in demand for personal computing chips. Looking into the final months of the year, however, AMD said it sees quarterly revenue in the region of $5.5 billion, plus or minus $300 million, with gross margins rising to around 51% on sequential growth for its embedded and data center units. Refinitv estimates were looking for a revenue forecast of around $5.85 billion. Intel will publish its fourth quarter earnings on Thursday, after the close of trading, with analyst looking for an adjusted bottom line of 20 cents per share on revenues of $14.47 billlion. Last autumn, Intel said it sees overall revenues in the region of $63.5 billion, down form its prior forecast of between $65 billion and $68 billion The group lowered its forecast for PC demand, as well, for both this year and next, while detailing cost reduction plans it said would save $3 billion in 2023 and a further $8 billion to $10 billion by 2025. Quoted

$Alibaba(BABA)$  Recently, the big Alibaba (NYSE:BABA) news was that Ryan Cohen of GameStop (GME) fame took a position, hoping to encourage more buybacks. Initially, investors on Twitter expressed dismay at the news, joking that BABA had now officially become a meme stock. Indeed, I added a little to this discourse myself, tweeting out the following half-joking comment: My post sounds like it is expressing negative sentiment, but wasn't meant to be taken seriously. I have never been a fan of meme stocks, but I know that Ryan Cohen made big returns on his meme investments by buying early. Therefore, I didn't take his endorsements as a negative. Indeed, Ryan Cohen's buying could be seen as a positive catalyst. Whatever you think of the meme stocks Cohen is associated with, we know that he is pushing Alibaba to do more buybacks, which could create value for shareholders. There are limits to how effective buybacks can be, but given BABA's modest valuation, they could really work in this case. Alibaba currently has$29 billion in cash on its balance sheet, and generated$3 billion in free cash flow last quarter. Given that the amount of cash this business throws off, it could easily afford to do $10 billion worth of buybacks each year and not run into any solvency issues. So, we've got Ryan Cohen advocating a policy that could well work for BABA-indeed, a policy that many BABA shareholders have been wanting for years. BABA has been doing buybacks, but so far it hasn't come anywhere close to hitting the maximum authorized amount. It looks like there's room for more, and who knows how long these bargain prices will last. For this reason, I think Ryan Cohen's investment is a neutral to positive factor for Alibaba, not a negative one. Quoted

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$Alphabet(GOOG)$  Alphabet Inc's Google is deferring a portion of its employees' year-end bonuses as part of a transition to a new performance management system, the search engine giant said on Thursday. The company will pay 80% advance bonus to eligible employees initially and the remainder in later months, a spokesperson told Reuters, adding that the move was communicated to staff last year. The development comes amid tech companies' attempts to limit spending amid a broader slowdown in demand and deteriorating economic conditions. Alphabet has so far announced cuts impacting over 200 employees in its health sciences division even as its megacap peers Amazon.com Inc, Meta Platforms Inc and Microsoft Corp have let go thousands of employees. The advance bonus will be paid in January and the remaining 20% in March or April, helping Google spread out costs to the next quarter, according to a CNBC, which first reported the story. All bonuses next year onwards will be paid in March, the report added. Google typically paid full bonuses in the first month of the year. Quoted

$Palantir Technologies Inc.(PLTR)$  Palantir Technologies (NYSE:PLTR) rose Wednesday in premarket trading as investment firm Mizuho started coverage on the data software company, stating it can provide "significant" value for its customers. Analyst Matthew Broome started Palantir (PLTR) with a neutral rating and a per-share price target of $7, noting Mizuho expects "ongoing global disruptions" to further help boost Palantir's (PLTR) business. However, with growth slowing in both its government and commercial businesses and ongoing economic weakness, a near-term reacceleration in growth becomes "much more difficult." Broome also noted that Palantir (PLTR) has become a "more strategic partner" to the U.S. government and has ramped its base of commercial customers in recent quarters, but the quarterly results are "lumpy," due to timing and continued global disruptions, such as COVID-19. "Given that the majority of its contracts are cancellable by the customer, including for convenience, there is clearly incremental risk going into an uncertain 2023," Broome added. Earlier this month, Palantir (PLTR) and Posit entered into a new deal to integrate wide range of individuals, teams, and enterprises to leverage RStudio Pro on Palantir Foundry. Quoted