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    Today’s News (Jan 20, 2021) : New ROIC features, Netflix reaches a milestone, Janet Yellen appears before Congress and an earnings roundup.

    Market Summary (12:45 P.M. ET): ““U.S. share benchmarks gained amid a busy day of earnings reports, with results from Morgan Stanley and Procter & Gamble, among others.” WSJ writes.

    Analyst Announcement

    Today we’re launching two features at acouplecents.com that many ROIC members have been asking for.

    1. Annual Membership: You now can subscribe to ROIC annually instead of monthly, at $99.99 per year instead of $9.99 per month (17% discount). 
      1. If you’re newly joining, just sign up here and choose the ROIC Annual Membership. 
      2. If you’re an existing ROIC Member, you can sign up the same way, and then go to your Profile Dropdown > Membership > Subscriptions and cancel your previous monthly membership.
    1. ROIC+ Discord Server: We’ve received requests from ROIC members for a Discord server so that they can be even more immersed in real time conversations and discussions. We’ve obliged and added a premium ROIC+ tier to access the server with real time news alerts, earnings alerts, and conversations. 
      1. Justin has also convinced a few of his Wall Street professional friends to join and we will be scheduling ROIC+ streams in the future. 
      2. We ask that only ROIC members join the ROIC+ server. Check it out here!

    We are building hedge-fund quality research for everyday investors looking to compound their wealth over the long-term. Although we provide great research already, we haven’t even scratched the surface of how much we can provide at scale. Each additional member of the ROIC community helps get us there.

    Netflix Passed 200 Million Global Subscribers, Says It Doesn’t Have To Borrow Money Anymore

    Netflix announced Tuesday it ended 2020 with more than 200 million global subscribers and that it was “very close” to being permanently “free cash flow positive,” The Information reports.

    Why It Matters: Reaching 200 million is an incredible milestone and maintains Netflix’s position of dominance in the streaming world. But even more important could be the cash flow news. Netflix has traditionally relied on its roughly $16 billion debt load to “fund an annual cash shortfall that in recent years was several billion dollars. The news means Netflix “no longer [has] a need to raise external financing for our day to day operations.”

    Numbers To Consider:

    1. Netflix added 8.51 million new subscribers in the fourth quarter, lifting its total to 203.66 million.
    2. The streaming giant also announced it had roughly $8.2 billion in cash and expects to “break-even” in cash this year.

    A Step Further: Netflix’s strategy has revolved around ramping up its TV and film content production aggressively — it plans to release more than 70 new films this year. Although Netflix was reporting net income at some points, its cash burn from presumably its high content costs restricted its ability to make money, and the company turned to outside financing to fund new projects.

    What’s Ahead: To prove its point, Netflix said it intends to repay $500 million in debt that comes due next month with cash. It will also keep debt levels flat and explore stock buybacks for the first time since 2011.

    Justin Oh:

    Netflix ($NFLX) has popped 14% on their killer Q4 subscriber growth numbers and is now trading at $571.95 per share. Here’s an excerpt from a premium research post about exclusive to ROIC members that I posted on December 22, 2020.

    But we also believe that analyst estimates may be underestimating growth in the next 12-24 months.

    • As the premier streaming utility, Netflix has very good pricing power and will increase prices globally, which will boost growth even as member growth tapers off.
    • Recent price increases in Canada and Australia might signal near-term price increases in other markets including the U.S.

    We are putting a 1-year price target of $560 per share on Netflix ($NFLX) based on higher growth and margin estimates in 2021 and 2022 than consensus. Given this only represents a 7% upside to where $NFLX is trading today at $523, we think there are more attractive stocks in the space to allocate capital to, but we will be on the lookout for buying opportunities upon weakness.

    Yellen Makes Case for Sweeping Stimulus Package in Face of GOP Skepticism

    “Janet Yellen made the case for another sweeping economic aid package at her hearing to be the next U.S. Treasury secretary Tuesday, pushing back against Republican skepticism of the need for more deficit spending to bolster the recovery,” WSJ writes.

    Why It Matters: If fiscal support is inadequate, or even delayed further, Yellen warned, it could harm the U.S.’s march toward economic recovery, resulting in long-term economic damage, permanent job losses and business closures that could restrict growth for years to come.

    Yellen’s Top Task: If confirmed by the Senate, which is expected, she will become “the administration’s top economic-policy spokesperson responsible for selling President-elect Joe Biden’s $1.9 trillion proposal, which includes another round of stimulus payments, extended jobless benefits, grants for small businesses and a nationwide vaccination program.”

    • After that, Yellen will focus on long-term investments in infrastructure and workforce training to improve the U.S. economy’s competitiveness and productivity.

    However, it won’t be an easy road. Some Republicans have already pushed back on Yellen’s call for further spending. Congress has already authorized trillions of dollars in fiscal stimulus, including December’s $908 billion package, and “they questioned her about the limits and risks of additional government borrowing and the wisdom of tax increases while the economy remains weak.”

    Justin Oh:

    From what I’m hearing, one of the more crowded trades among hedge funds is the “short dollar” trade, which involves making investments that benefit from the US Dollar weakening in value, relative to real assets or other currencies. 

    Undoubtedly many expect the US Dollar to weaken because of all the existing and upcoming stimulus that will artificially create dollars.

    Other popular trades look like they are investments in Bitcoin and Big Tech stocks.

    Earnings Roundup: Morgan Stanley, Procter & Gamble

    Morgan Stanley announced Q4 profits grew 51% from a year earlier, WSJ reports.

    Numbers To Consider:

    1. The New York-based bank reported a profit of $3.39 billion on revenue of $13.64 billion.
    2. Analysts at FactSet had predicted revenue of $11.58 billion.

    Morgan Stanley’s success marks another turnaround of a major U.S. bank affected by the turbulent market caused by Covid-19. Overall, it benefited from a continued recovery on Wall Street and “federal pandemic-response measures that forestalled the worst-case economic scenario.”

    Proctor & Gamble saw a sales increase of 8% in the quarter ending Dec. 31, WSJ reports.

    Numbers To Consider:

    1. The company posted sales of $19.8 billion against analyst expectations of $19.98 billion.
    2. P&G’s net income was $3.9 billion or $1.47 a share, an improvement from $1.41 a share in the year prior.

    “Despite a tough economic picture and high unemployment, the maker of Gillette razors and Pampers diapers said consumers are increasingly willing to pay more for products. And P&G, armed with extra cash following years of downsizing and solid sales, has been churning out a range of high-end items.”

    Justin Oh:

    Morgan Stanley ($MS) and Goldman Sachs ($GS) are doing very well on the backs of how well the equity markets are doing. They generally have high net worth and institutional clientele and have benefited from increased trading, corporate deals, and equity issuances like SPACs and IPOs. 

    This is as opposed to more consumer-focused banks like Bank of America ($BAC) and Wells Fargo ($WFC), which are affected by broader unemployment in the lower and middle classes as well as extremely low interest rates.

    P&G’s relatively high-growth quarter and apparent pricing power is quite interesting. On one hand, people are staying at home more and might be buying more consumer staple products. But on the other hand, is this finally an early sign of consumer inflation as a result of all the stimulus? We will continue monitoring this trend…

    1/20/21: What’s Going On

    “Moderna Inc.’s leader said the drugmaker is on track to produce enough doses of its new Covid-19 vaccine to help meet President-elect Joe Biden’s goal to administer 100 million vaccine doses in the first 100 days after he takes office on Wednesday. Chief Executive Stéphane Bancel said Tuesday that Moderna plans to deliver 100 million doses of its shot, which requires two doses per person, for use in the U.S. by the end of March, with additional doses to follow. Pfizer Inc. and its partner BioNTech SE also are supplying doses of their vaccine to the U.S.”

    “Embattled billionaire Jack Ma made his first public appearance in nearly three months, speaking via a video link at a philanthropic event on Wednesday, easing speculation about his safety and whereabouts. Spokespersons for the Jack Ma Foundation and Ant Group Co., the financial-technology giant that Mr. Ma controls, confirmed a Chinese media report that said he gave a speech to a group of teachers from rural schools.”

    “The Federal Trade Commission has ordered a photo storage company to delete facial recognition algorithms it used on photos it collected from users without their permission, according to Medium’s OneZero. The FTC’s action is the first time a company has been required to delete algorithms and could be a harbinger for future regulation. Lawmakers are increasingly focused on algorithms as a potential target for regulation.”

    Companies Raising Capital
    NameAmountDescription
    Rivian$2.65 BillionEV Company Preparing To Begin Production Of Its All-Electric Pickup Truck
    Cruise$2 BillionAutonomous Vehicle Company Aiming To Commercialize Their Tech

    “Wattpad, the 14-year-old, Toronto-based, venture-backed storytelling platform with reach into a number of verticals, is being acquired by Naver, the South Korean conglomerate, in a $600 million cash-and-stock deal.”

    “Stellantis N.V.’s new Chief Executive Carlos Tavares outlined his vision for the newly combined automaker Tuesday, saying he would preserve factories, draw more distinctions between brands and reassess troubled operations in China.”

    “UnitedHealth Group Inc. recorded a smaller profit for the last quarter of 2020 as the company had to pay more in medical costs to cover insured members who returned in greater numbers to doctors’ offices after putting off care earlier in the coronavirus pandemic.”

    “Corporate technology recruiters say rolling back restrictions on immigrant work visas, a move backed by President-elect Joe Biden, will expand the pool of information technology job candidates and help ease a longstanding labor shortage.”

    “The head of the European Commission called on incoming U.S. president Joe Biden to work with European lawmakers in reining in the power of America’s largest tech companies.”

    “European biotech firms are flocking to the U.S. this year to raise equity capital, lured by the world’s largest pool of money and lofty valuations, with some skipping a listing in their home market entirely.”

    Previous Coverage

    Target Boosts Holiday Sales During Covid-19 Pandemic

    Target reported its winter holiday sales “rose solidly as more shoppers bought goods online, adding to a series of strong results from the retailer during the Covid-19 pandemic,” WSJ reports.