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NFLX Explodes Higher After Blowout Q3 Results, Hikes Prices After Best Subscriber Growth Since 2020

NFLX Explodes Higher After Blowout Q3 Results, Hikes Prices After Best Subscriber Growth Since 2020

After suffering a historic collapse at…

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NFLX Explodes Higher After Blowout Q3 Results, Hikes Prices After Best Subscriber Growth Since 2020

After suffering a historic collapse at the end of 2021, when in the span of five months Netflix lost 75% of its value, the company has enjoyed a solid recovery over the past year when it rose by nearly 200%, from a low of $166 to a recent 52 week high of price of $481, which was the highest since January of 2022, before it lost 28% of its value in the past three months.

Curiously, the solid performance over the past year - which saw the stock down 41% from its pandemic-era all-time closing high of $610.34 on June 30, 2021 but also up 21% YTD vs the 14% increase in the S&P - continued despite several earnings reports that were at best mixed (two quarters ago NFLX not only missed on subs but also slashed guidance, last quarter the company's guidance disappointed despite blowing away subscriber estimates) which brings us to today when the OG video streamer is again trading north of $150N in market cap despite an ongoing Hollywood strike that has mothballed the company's movie and production pipeline for months.

With that in mind, bulls are are hoping for stronger revenue and subscriber growth and guidance than one quarter ago, including more than 6  million new streaming subs at a time when NFLX has cracked down aggressively on password sharing and is navigating a transition from focusing on subscriber growth to maximizing earnings through price hikes and an ad-supported service. It has little choice amid a torrent of competition from some of the world's biggest media companies. Here's what else to expect

  • Earnings: EPS is expected to print $3.49 a share, up from of $3.10 a share last year.
  • Revenue: Bloomberg revenue consensus is for $8.53 billion in revenue, up from $7.93 billion a year earlier.
  • Stock movement: Netflix shares typically see percentage swings ranging from the high single-digits to the mid-teens after the company posts results.
  • Q4 Projections: Revenue estimate $8.76 billion; EPS estimate $2.17; Operating margin estimate 14%
  • Full year projections: Free cash flow estimate $5.27 billion; Operating margin estimate 19.8%

What else analysts are watching for:

  • "We think Netflix is well-positioned in this murky environment as streamers are shifting strategy, and should be valued as an immensely profitable, slow-growth company," Wedbush analysts said in an Oct. 6 note with an outperform rating and price target of $525. "Even while ads are not yet directly accretive (we think they will be accretive by year-end), the ad-tier should continue to reduce churn and draw new subscribers to the service."
  • Meanwhile, TD Cowen analyst John Blackledge said that he expects paid net additions of 6.5 million subscribers versus a consensus of 6 million, but also sees gradual margin growth in the fourth quarter and beyond. He maintained an outperform rating but trimmed his Netflix price target to $500 from $515 in an Oct. 11 report.
  • Wells Fargo said that advertising is “off to a somewhat slow start” with pricing and audience delivery below initial advertiser expectations in the first half. The company recently shook up leadership of its ad sales business. “Investors have said to us, they would like to see a more aggressive push, such as automatically converting Basic subs to Basic with ads.”

With that in mind, and considering that options were pricing in a 7.6% swing after hours today, here is what NFLX reported for its third quarter:

  • EPS $3.73, beating estimates of $3.49, and above the $3.10 a year ago
  • Revenue $8.54 billion, +7.8% y/y, just barely beating estimates of $8.53 billion
  • Streaming paid net change +8.76 million vs. 2.41 million y/y, smashing estimates of +6.20 million
    • UCAN streaming paid net change +1.75 million vs. +100K y/y, beating estimate 1.22 million
    • EMEA streaming paid net change +3.95 million vs. +570K y/y, beating estimate +2.22 million
    • LATAM streaming paid net change +1.18 million vs. +310,000 y/y, beating estimate 1.15 million
    • APAC streaming paid net change +1.88 million, +31% y/y, beating estimate +1.41 million
  • Streaming paid memberships 247.15  million, +11% y/y, beating estimate 244.41 million
  • Operating margin 22.4% vs. 19.3% y/y, beating estimate 22.1%
  • Operating income $1.92 billion, +25% y/y, beating estimate $1.9 billion
  • Free cash flow $1.89 billion vs. $472 million y/y, beating estimate $1.27 billion

The results visually:

The number of new subs added was the strongest since Q2 2020, the peak of the covid lockdowns. Netflix is now on track to add more than 20 million customers this year, a big jump from fewer than 9 million in 2022.

Cracking down on password sharing has been one of the major initiatives at Netflix, which is trying to revive growth after a sluggish year or two. The company also rolled out an advertising-supported version of its streaming services in 12 markets. About 30% of new customers in those markets opted for ads last quarter, the company said.

And here is the regional detail: EMEA (Europe, the Middle East and Africa) accounted for the largest share of Netflix’s growth in the third quarter. The company added almost 4 million customers in that region. The average amount Netflix makes per customers hasn’t changed much in the past year.

The company credited a strong programming slate and its crackdown on password sharing, to wit:

Revenue growth in Q3 reflected a 9% year-over-year increase in average paid memberships (8.8M paid net additions vs. 2.4M in Q3’22) due to the roll out of paid sharing, strong, steady programming and the ongoing expansion of
streaming globally
. ARM decreased 1% year-over-year both on a reported and F/X neutral basis, in-line with our expectations. This was due to a number of factors, including a higher percentage of membership growth from lower ARM countries, limited price increases over the past 18 months, and some shift in plan mix.

Q3’23 operating income totaled $1.9B vs. $1.5B last year (up 25% year over year), slightly above our guidance forecast due to the revenue upside and timing of content and other spending. As a result, we delivered an operating margin of 22.4% (vs 22.2% forecast), up three percentage points vs. the year ago quarter. EPS in Q3 was $3.73 vs. $3.10 and included a $173M million non-cash unrealized gain from F/X remeasurement on our Euro denominated debt, which is recognized below operating income in “interest and other income

Netflix also said that adoption of its ads-funded plan continues to grow — with ads plan membership up almost 70% quarter-over-quarter — and 30% of sign ups in our ads countries are, on average, to our ads plan, with more work to do to scale this business.

The successful rollout of paid sharing, which lets customers purchase additional access for friends or family, has emboldened Netflix to raise prices in some of its biggest markets. Starting Wednesday, Netflix is increasing the cost of its most expensive plan in the US by $3 to $23 and its basic plan by $2 to $12, while keeping two other plans the same. It’s taking similar steps in the UK and France, two other large markets.

While the current quarter was stellar, the company's Q4 guidance was curiously on the weak side, coming below consensus for both revenue, EPS and margins:

  • Sees revenue $8.69 billion, estimate $8.76 billion
  • Sees EPS $2.15, estimate $2.17
  • Sees operating margin 13.3%, estimate 14%

The company said subscriber additions would be similar to the just-ended quarter, plus or minus a few million. Some more details from the company:

  • For Q4’23 Netflix forecasts revenue of $8.7B, up 11% year-over-year, or 12% on an F/X neutral basis. For the fourth quarter, the company expects paid net additions will be similar to Q3’23 (+/- a few million). Global ARM in Q4 is expected to be roughly flat year-over-year, primarily due to limited price increases over the last eighteen months. In addition, over the past few months the US dollar strengthened versus other currencies, representing a roughly $200M expected drag on Q4 revenue and ARM.
  • In terms of profitability,

And here is full 2023: thank you striking workers:

  • Sees free cash flow $6.5 billion, saw at least $5 billion, and above the estimate $5.27 billion: "We now expect FY23 free cash flow to be approximately $6.5B (+/- a few hundred million dollars), up from our prior forecast of at least $5B, and vs. $1.6B in 2022. This includes ~$1B in lower-than-planned cash content spend in 2023 due to the WGA and SAG-AFTRA strikes. As a result, we expect 2023 cash content spend of around $13B and, assuming the SAG-AFTRA strike is resolved in the near future, we are currently expecting cash content spend of up to ~$17B in 2024. As we said last quarter, the strikes will create some lumpiness in FCF over the 2023/2024 period, but we still plan to deliver very substantial positive FCF in 2024."
  • Sees operating margin 20%, saw 18% to 20%, estimate 19.8%: Netflix is updating its FY23 operating margin guidance forecast to 20%, the high end of the prior 18% to 20% forecast (based on F/X rates as of 1/1/23). This would mean that the operating margin would increase approximately two percentage points from our 18% operating margin in FY22. Assuming no material swing in F/X rates, the company currently expect an operating margin in FY24 of 22% to 23%.

Yet we find it odd for the 2nd consecutive quarter that while the Hollywood strike is boosting free cash flow, it has no adverse impact on revenue...

Netflix has returned to growth as many of its peers struggled to figure out their streaming operations. Walt Disney Co., Warner Bros Discovery Inc. and Paramount Global have all cut costs and fired staff to improve their financial performance. They have spent billions of dollars to fund new streaming services that can replace their declining linear TV networks. But most of the newer streaming services lose money.

“We’ve shown that with discipline and a focus on the long term, you can build a strong, sustainable streaming business,” the company said in a letter to shareholders.

Going back to the company's results, free cash flow in Q3’23 amounted to a whopping $1.9B compared with $472MM in the year ago quarter; this was the second highest FCF quarter on record but was largely as a result of the lack of cash spending due to the ongoing Hollywood strike.

NFLX finished Q3 with gross debt of $14B (in-line with the company's $10B-$15B targeted range) and cash and short term investments of $8B, leaving net debt at $6.5BN. During the quarter, NFLX repurchased 6M shares for $2.5BN. Since the inception of this authorization, NFLX has bought back $4.1B. In September, the board increased an additional $10BN stock repurchase authorization on top of the $1B remaining under the prior authorization.

Netflix has returned to growth as many of its peers struggled to figure out their streaming operations. Disney, Discovery and Paramount have all cut costs and fired staff to improve their financial performance. They have spent billions of dollars to fund new streaming services that can replace their declining linear TV networks. But most of the newer streaming services lose money.

And while the company's Q4 guidance was just a touch on the light side, the market was more than happy with the surge in Q3 subs and the full year cash flow guidance, and sent the stock, which is up 17T this year, 11% higher after hours; however when factoring the 2.7% drop during the regular session, most calls and puts will expire worthless: the market was pricing in a +/-8% change today and that may be precisely what it will get.

Tyler Durden Wed, 10/18/2023 - 16:46

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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Another country is getting ready to launch a visa for digital nomads

Early reports are saying Japan will soon have a digital nomad visa for high-earning foreigners.

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Over the last decade, the explosion of remote work that came as a result of improved technology and the pandemic has allowed an increasing number of people to become digital nomads. 

When looked at more broadly as anyone not required to come into a fixed office but instead moves between different locations such as the home and the coffee shop, the latest estimate shows that there were more than 35 million such workers in the world by the end of 2023 while over half of those come from the United States.

Related: There is a new list of cities that are best for digital nomads

While remote work has also allowed many to move to cheaper places and travel around the world while still bringing in income, working outside of one's home country requires either dual citizenship or work authorization — the global shift toward remote work has pushed many countries to launch specific digital nomad visas to boost their economies and bring in new residents.

Japan is a very popular destination for U.S. tourists. 

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This popular vacation destination will soon have a nomad visa

Spain, Portugal, Indonesia, Malaysia, Costa Rica, Brazil, Latvia and Malta are some of the countries currently offering specific visas for foreigners who want to live there while bringing in income from abroad.

More Travel:

With the exception of a few, Asian countries generally have stricter immigration laws and were much slower to launch these types of visas that some of the countries with weaker economies had as far back as 2015. As first reported by the Japan Times, the country's Immigration Services Agency ended up making the leap toward a visa for those who can earn more than ¥10 million ($68,300 USD) with income from another country.

The Japanese government has not yet worked out the specifics of how long the visa will be valid for or how much it will cost — public comment on the proposal is being accepted throughout next week. 

That said, early reports say the visa will be shorter than the typical digital nomad option that allows foreigners to live in a country for several years. The visa will reportedly be valid for six months or slightly longer but still no more than a year — along with the ability to work, this allows some to stay beyond the 90-day tourist period typically afforded to those from countries with visa-free agreements.

'Not be given a residence card of residence certificate'

While one will be able to reapply for the visa after the time runs out, this can only be done by exiting the country and being away for six months before coming back again — becoming a permanent resident on the pathway to citizenship is an entirely different process with much more strict requirements.

"Those living in Japan with the digital nomad visa will not be given a residence card or a residence certificate, which provide access to certain government benefits," reports the news outlet. "The visa cannot be renewed and must be reapplied for, with this only possible six months after leaving the countr

The visa will reportedly start in March and also allow holders to bring their spouses and families with them. To start using the visa, holders will also need to purchase private health insurance from their home country while taxes on any money one earns will also need to be paid through one's home country.

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