 Welcome back to the end of the week and what a week in markets It has been because quite a lot has changed over the course of the last five days And we're gonna divide this episode into two parts I'm gonna talk first half about some macro updates. And what I mean by that is US GDP Absolutely crushed forecasts just the other day inflation remained relatively controlled People talking about Goldilocks again if you haven't listened to any previous episodes I'm sure peers will break down why he's a big fan of the Goldilocks tail here and why it boosts markets generally And then we had the ECB kept rates on hold pretty much as expected Rhetorated forward guidance, but did not push back against market expectations for earlier rate cuts And then after we were kind of writing off Beijing saying yeah They're just letting the markets tank and how badly Chinese equity markets have been performing they've come out with the bazooka and gone Here's three hundred billion dollars worth of stimulus cutting interest rates trimming the reserve requirement ratio and so in kind the Hong Kong stock market which we were very Much pessimistic about and its recent performance Has clocked its best day more than two months on Wednesday after that action from the Chinese government and then the second half We're gonna just break down two stock stories one good Netflix and one not so good Tesla who I think had a look this morning They were down what 12% they closed down yesterday. So pretty big moves and you know on the flip Netflix with up as much as 14% so yeah big moves Finally your your Tesla short was finally Becoming less expensive Don't get me wrong. It's not that I short it. It's that I talk it down and then buy into it Oh, you see right so I'm one of those. I'm a typical kind of you know banking philosophy I'll just talk talk it down and then take the other side All right. Well, let's let's kick it off then with the Headline us Advanced Q4 GDP and just so everyone's on the same page. So with GDP readings, there's three readings The advanced reading is the first reading of the prior quarter So it's always the most important one because at this point all we have are kind of factored like model generated estimates Whereas going forward in the preliminary in the final readings They're just purely statistical revisions to that first reading which is the one we've had this week So it's really important Obviously, it's a key component for are we going to have a soft landing? What's that going to mean for the interest rate expectations? It came in at 3.3% versus expectations of 2% which is a Really big beat if you're not used to looking at these numbers So what what did you make of that when you saw that? well, I mean, I mean, we know that the US economy is being in this mode of You know at performance right resilience That's been the story of the last 12 months. And so it's surprised in the least surprising direction Better than expected is the mode of operation these days So if I had been worse than expected that would have been a bigger surprise if you see what I'm saying but yeah, the size of the beats huge and You know a lot of that coming from, you know decent sort of personal spending was up 2.8% And that's you know, if you think about consumer spending, that's essentially two-thirds of the economy So when you're thinking about that GDP figure then yeah, two-thirds of it because we we we of course measure GDP in dollars So actually it did mean that because and it was the last quarter of the year So we've got full year figures for 2023 as well within this reading and so in 2023 the US economy clocked 26.95 trillion dollars and Yes stellar performance and I think that Yeah, you you've got to continue to be fairly shocked Actually, but just how strong this thing is when you're thinking and living in Europe or Certainly when you're looking at China You know, it's very very much Pointing in the exact opposite direction from a China point of view You know in the UK here were for the whole second part of 2023 at best The economy was zero and here you got the US 4.9% growth in quarter three 3.1 3% in quarter four And by the way, I should just point out something to have a little trick That the US do when you're reporting your GDP figures the US report their figures in what's called an annualized way So when they say that the economy grew 3.3 percent in quarter four it did not It if you took the growth rate in those three months and multiplied it by four They kind of give you an equivalent full-year growth if the economy grew at that rate for a full 12 months, right? When like the UK report their GDP, we don't annualize it So we report it as in just the growth in those three months So that's one slight caveat, but what why would you not? Follow that protocol of optics if the US is the biggest economy It drives the most investment. It has the most importance. I Get like let's be principled and report the true numbers But but I mean put that to bed like wake up and smell the coffee. I'm afraid like you got to annualize that surely It's very department needs to push a little harder there. It's very British, isn't it? Yeah You gotta kind of play it down play it down, you know, let's not we don't want to be seen to be being arrogant here But yeah, anyway back to the point 3.3 percent mega like mega mega And you know, you've really got to start well So some camp some parts of the camp are going well hang on a minute You know, we're thinking rate cuts throughout the whole of 2024 But the the pace of growth here is like wow We may not get rate cuts at all for the first half of the year So there is there are there are potential consequences to Rate cut expectations because this figure is so strong, but you know for now It's been a great week like I was looking at stocks. Okay, and I'm not just US stocks But S&P hit new all-time highs This week and actually broke the previous high that was January 2022 But it's not just the US right and obviously a lot of that US growth is driven by the mag 7 Or really we should call them the mag 6 now because there's been a casualty that we'll talk about later in the pod But but it's not just US stocks because if you check out like things like Nikkei 225 So that's the Japanese stock index new all-time highs this week Let's venture into Europe the DAX new all-time highs the cac That's the French index DAX being the German index cack French French index. That's testing you new all-time highs So and that maybe just makes the point that If the US is strong Then the world is in a good place It is the dominant economy it is Has the most influence on everyone else's economy because they're the biggest and their consumption is so massive And so yeah, if anything goes wrong in the US the whole world's in trouble But when it's on fire, then it's it's propping up everyone else at the moment Imagine if the US economy wasn't performing well, well, I mean, you know, the UK economy would 100% be in Procession right now. So, you know, the US is kind of doing everyone a favor But the question is just how long can it last how long can the decoupling here? continue and But yeah for now Phenomenal yeah, I'm on all numbers and the other thing that came out with GDP is core prices So PCE personal consumption expenditures, which the Fed look at for inflation So the two big components everyone looks at being then the growth rate But also what is inflation key weighted factors for their policy decision? Making kind of process and that figure it rose to 2% for the period while the headline rate was 1.7% Which both were relatively I guess you could call it controlled or steady which meaning that the economy is growing but inflation is not going up and so Reinforcing this idea of soft landing which is inflation is relatively tamed without triggering a recession with growth. I Goldilocks scenario positive off we go Absolutely, I mean it is the it's literally the best of both worlds Strong resilient growth Dropping inflation so the point there and actually Yellen who kind of backed up these figures Janet Yellen Treasury Secretary kind of came out trumpeting how amazing they are and then they are But one thing she did try and put to bed was this idea that you know, oh my god inflation is going to go back up. She wanted to kind of suppress that What is an incorrect sort of judgment and that from exactly what you said and and ultimately best of both worlds Yeah, we can and she made the point or maybe it was someone else who made the point that we can still see the Fed cut rates Even if the economy does stay strong and that's because of this nominal Interest rate thing where ultimately the real or sorry the real interest rate is Actually looking at the actual central bank rate minus inflation and so if you you know if inflation's dropping And you keep the central bank rate unchanged The real interest rates going up So we're kind of getting pseudo rate hikes here And so there is justification for the central bank to cut rates to bring that real interest rate back down Where really they're just saying we want to try and their policy shift could be we're moving to maintaining a Steady real interest rate Which would require rate cuts so they can cut Even if the economy carries on being you know seemingly on fire, but the rate cuts would be Certainly more modest. They'd be more cautious about it. That would definitely be fewer cuts if the economy stays strong Yes, I totally agree with your assessment about the US Putting the world on its back at the moment, but there's obviously some other Things that have played in a more positive fashion to support the these moves that you mentioned across So say the European indices we have the ECB this week So they kept their interest rates steady when we say interest rates is actually three of them But it's the deposit rate that typically people refer to and that's at 4% They reiterated it would keep them high for a quote sufficiently long duration to bring inflation to target So that's pretty much a reiteration of their standard guidance I think that is what the guard said when she was you know sipping champagne in Davos last week But the point being here is that markets generally have been a little bit more aggressively priced in a dovish fashion Against what central banks have been communicating? certainly for the US for some time and and for the UK even Although that has changed slightly given some recent data points But same case in Europe. So generally what You would have looked out for right in the past was okay this is all as expected and then You wait for her to speak in a press conference and the market is much more dovishly priced than what she's saying Which is look, we're not going to cut anytime soon We're still very cautious about inflation and then the market's pricing in multiple cuts and she doesn't say anything So what does that trigger in your heads from a trader's perspective if she doesn't push back against the misalignment of How and what you as market participants are thinking against what they're saying? What is that signal? Well, I Think that with the ECB it's a little more tricky. Lagarde's got to play I think her communication is More yeah, yeah more fraught with with with risks and danger I think that they're historically very cautious so In her head, I think she agrees with markets but what comes out of her mouth is Different they don't want to lose credibility is one so they don't want to get it wrong They all know they don't want to promise the world, right? We're gonna cut X number of times in 2024, but when the time comes to it Things have changed and actually God actually we can't cut sorry guys So they don't want to kind of do that because so that's number one number two You got lots of different players around that ECB table. Don't forget. There's 19 different countries And and so economic conditions can vary pretty dramatically. So you may well have some of the the ECB, you know council Basically saying look, we don't want cuts at this point. You're obviously going to get the opposite side of the table So you I think the conversation is more more tricky there but but mainly they don't want to They don't want to over promise and under deliver And so they end up what comes out of her mouth is in super cautious. So I don't believe it Markets don't believe it they they are more confident in their own assessment Understand the kind of games that the guards got to play that would be my opinion So the bottom line being then if she doesn't push back against our market surprise, she agrees So therefore, yeah, there's gonna be sooner rate cuts than what they're implying through their official forecast and therefore Stocks go up right Simple Yeah, the other that's new highs, right? Yeah, the other strategy they could use I guess is to Toe the line as you said keep credibility and then just use source comments via Bloomberg To then align themselves with actually this is what we're actually thinking even though it's like that But you know, this is what I guess as a student or someone new to markets probably watching this You've probably thinking what like what why don't they just say what they need to say? Yeah, it's a bit of a ridiculous theater this whole monetary policy game But that's That's what it is at the moment. So you've kind of got to play along Yeah, all right. Well, then we'll move on to the final one in the kind of macro space, which is China So we talked a lot in the last episode in fact, it's just a week ago Yeah, how bad it's been for domestic stocks both mainland and in Hong Kong the lack of real I guess intervention coming by way of the Chinese government, which they typically would do It looks like enough is enough and this week they've come in pretty heavy-handed And gone for the the fall across the board Well, how they talked about it was a broad plan Where they're going to guide money into sex sectors of national importance to boost the faltering economy so Is this surprising or it's just just a matter of time. Do you think well? It's surprising on the one hand because as we were saying last week the Chinese premier talking in Davos Last week said nothing And we were that's where the kind of a bit more panic I would say set in and then Chinese stocks. I mean they got hammered off the back of that and trading like down To we're talking about all these stock indexes at new breaking new highs, right? US Japan Germany China's market. It's like it. It's like down at low is not seen since 2020 It's plumbing are like four or five year low and it's so that there is a huge obviously contrast there. So I Think that we were so disappointed by the Davos speech that then all right They turned around and got the bat out and really, you know delivered a pretty Meaningful set of stimulative measures so that it kind of came as a surprise Because we got disappointed off that Davos speech. So yeah, there has been a knee jerk snapback in in markets But look, there's still really I would say what's happened is so I'm looking at the Shanghai Stock Exchange And off the back of that disappointment in Davos. It dropped to 2748 okay Bearing in mind that middle last year is up above 3400. So 2700 let's just round it 2750 was the low last week. It's now up to 2900 so huge snapback, but it's still down on the year So and and you wouldn't say from a kind of technical point of view that rebound does not It's not broken any kind of downward trend lines here So whilst that was an important and necessary step They need stimulus for sure And actually here's a measure. Well, I mean, why do I say that? There's There's a there's a strong evidence now that not only we were obviously so worried about inflation in the west Over the last few years, right and all these rate hikes and great inflation is coming back under control now in China You never really had that inflation spike and actually what's happening now? They have a straight-up deflation risk and Looking at I mean one of the stats off the back of these US GDP GDP figures So the US economy in 2023 let's round it to 27 trillion dollars. Okay now China's economy grew at a You know much slower rate than was expected Okay, and their economy was at 17.7 trillion now the gap between the two and The gap has been shrinking and shrinking and shrinking and everyone's been going like for for decade couple of decades now The prediction has been China will become the biggest economy in the world It's inevitable. It's only a matter of time and people starting to try and pick dates and the future And is it gonna be 2030 and all this right? And and ultimately what's happened in 2023 The gap between the two has got bigger again So the US economy has powered forwards at the expense of China and the gap is now at the largest since 2010 So you really have got this Divergence and decoupling here as the US powers on and China's in a real real problem place So yeah, this stimulus that's come you could say it's over, you know They should have gone earlier many would say Which is why I think that the market reaction has been a positive one, but it's not that positive So I think the jury is still out that it's a bit late And actually there's way more to do here and this package they've delivered this week I mean fine, but give us some kind of guidance about and this is the problem with China's policy There's no guidance. They just do something and then they don't really tell us right What's our roadmap for 2024? What's our policy gonna be for the next 12 months? And then that's So it's hard if there's no roadmap no guidance then you can only go So so this is how I'm talking from like when I was on the desk and you were trading So you would always say to me like, I don't know What's the probability they're gonna cut today because you get signals like economic deterioration would kind of Signal that something's gonna happen. They're gonna cut rates. They're gonna cut the reserve of current ratio Stimulus package, whatever it might be. So without forward guidance, you can know it you can only look back data, which is well, what is the routine pattern here and Actually looking back through all of the episodes. You could pretty much nail it down to like a time of day Where generally they want biggest bang for their buck So they don't make an announcement overnight in the Asia session normally they would do it just as a crossover of Mid-morning UK as US are coming in totally outside of their hours so that they let the world know So if you're looking at backward-looking then They do always through necessity take action So it feels a little bit like if oil goes down far enough OPEC will take action If the Swiss flaw that they had in their currency, you'll be it they pulled it many years ago, but they would protect it Isn't this just well, yeah, almost like too big to fail. They've so committed to this policy now That they have to like it seems like there's limited Risk to that kind of catastrophic deterioration of China a short term. I agree but it would be nice to For them to just let us know that is going to happen, but I know what you're saying I mean look, they're not gonna obviously the economic growth situation in China is Absolutely key and pivotable pivots pivotal to Xi Jinping's Whole strategy, you know, he cannot let the economy You know go into a full-blown Recession So, yeah, they'll come in but the point is you get these figures out of the US and it just It continues to defy belief at how differently the two giant economies in the world are performing Right now and actually maybe a final point here a good measure of this is the Big Mac index Yeah, which is the he I was just reading in the economists this morning. So this is the economists Sort of it's one of their kind of measures of kind of economic Performance and basically they just take the price of a Big Mac in every country and then using the exchange rate Right, what's the difference? And I'm really it's trying to measure sort of purchasing power Parity in a way, but right now if you wanted a Big Mac in China, it's going to cost you 23 yuan Okay, you want one in the US. Can you believe it's five point six nine dollars now for a Big Mac? On average in the US. Okay. Now if you said, right, those are the same. That's the same value 23 yuan is the same value as five point six nine dollars then because That amount of money buys you the same thing. It's a big man So using those Big Mac prices the exchange rate should be 4.04 The exchange rate is actually seven point two if you look at money markets Meaning the yuan is now 44% undervalued compared to the dollar on that basis and that's that that's that's wildly out of line and Again, another measure that will hang on a the Chinese economy is really weak be the Chinese currency is majorly overvalued. This is perfect Q Donald Trump Enter stage left to start doing some China bashing throughout the election campaign telling them that you know They're manipulating currency markets to their own advantage So listen out for some signed by sound bites from good old Donald on that front in the months ahead Yeah, I almost think as you're explaining all of this China part that I Actually think that China might want Trump in Empower irrespective of the economic consequence short-term if I think about it from a strategy perspective from the government's handling for their own internal optics of the kind of the The perception you're trying to build of your country's narrative in the global order Yeah, I've had a really bad COVID handling situation. The economy is pretty weak What you need is this You need to frame the most villainous character Who is going to put trade tariffs on you make life difficult on you? So then you can pivot to that as an excuse and at the same time that can Celerate your relationships with the likes of India Russia the rest by further Fragmentation of that kind of divide between traditional West and this new forming block of powers. So Yeah, I actually think that China wants Trump Yeah, and Therefore if they want Trump There's ways and means to ensure that Kind of thing right through one nation all the other things So, yeah, I actually think that yeah, there's a little sideline here. Yeah, despite all of the the kind of more definitive First order kind of reasons of why Trump might be Biden. I think there's also a bigger Thing at play here, which with all the conversations had of AI This election is is optimal to again try to destabilize the West and use it to your advantage in the East Yeah, but that on the account on that final point Trump is not gonna I mean from a regulation point of view he's anti regulation, right? So from the AI race Perspective Trump getting into the White House is good news on the one hand for the US They're not going to get blocked by regulation in this in this game So that might play in badly to China's hope that regulatory factors will delay the West giving them an edge But yeah, there's so many moving parts. It's it's fascinating All right Well, let's go on to the stocks side of the conversation So, what do you want to go? Do you want to talk positive or negative? I? Think let's end on a positive Okay, that's always bad news first right then then you get the clear the slate So as I said at the top of the episode Tesla finished Thursday's session down 12% That was after they released their earnings report midweek So they narrowly missed earnings estimates. They warned that its rate of expansion will be notably quote lower this year Also executives cautioned that they're approaching the limits of their efforts to cut costs in Their current vehicle lineup So is there anything else that you saw within the Tesla report that you think? You know, I'm always a bit remiss 12% sounds like a lot for a company of that Size however, yeah, they are a unique case and they do swing around a lot And I saw a lot of people talking them down saying they're the worst performing of the mag 7 or whatever it might be They were the third best performer up a hundred and six percent last year. I might remind those bearish minded people but So, yeah, I'm too long in the tooth to get carried away by a 12% Tesla these days. But yeah, that's their stock is down 30% in the last one month So look that let's not avoid the point that they're shocking right really really bad and Warranted because look if you're a Tesla stock where you're, you know, you're the multiples you're trading on are monstrously large then anything that's not Like smashing it out of the park means you're overvalued So they definitely are not they didn't smash it out of the park, right? All the numbers are kind of pointing towards deceleration in growth And you can't you can't have a deceleration in growth story and maintain Super high Valuation so I think that and one thing that was interesting That again is kind of spooked markets a bit Musk loves nothing more than a Super aggressively bullish Forecast about how many units they're going to deliver in the year ahead Okay, and he like I remember at the start of 2023 said we're going to do 2 million this year You wait you wait and see we're going to put out 2 million vehicles in the end. It was 1.8 million All right, you might say well 90% decent, but look they missed by 200,000 units right that's a big miss now The really interesting thing was Musk and Tesla did not give a forecast for their unit output in 2024 For the first time every year they're like we're going to do this and the market's going wow That's amazing that growth. Wow bye bye. Bye. So I think that tells an interesting story But I do think to two more things on that point It's like the perfect storm at the moment for Tesla I think for for a number of reasons So firstly if you think about price, right, we'll talk about margins So one of the key Sort of measures for the automotive industry broadly is what's called gross margin. It's such a capital-intensive business Building, you know any manufacturing firm is and so we look at gross margin as the kind of key metric to tell us about Right the profitability and the health of this thing. So that gross margin I'm going to take out their regulatory credits We won't go down that rabbit hole at the moment, but they have the because they're an EV Green company they get regularly and gonna ditch that for a second their real gross margin is 17.2 percent Okay, which is kind of our industry You know that that's about it's decent, but It's not standout in the industry. They used to have a Standout gross margin, but Musk took the decision Probably 18 months ago now to say right we need to cut costs. That's right. We need to cut prices here because a we've got a cost of living crisis and the reaction to The EV revolution has been that everyone's like wow these things are very expensive And so it has hampered demand The fact that EV vehicles are a decent premium over and above petrol and diesel vehicles Right in the middle of a cost of living crisis Which has been driven by inflation and a massive uptick in interest rates. Okay, so the macro Climate has been incredibly challenging. They've cut prices which has damaged margins, right? I'd also say that their their product lineup is very limited Yeah, but they don't have like a low cost super low cost affordable option They can just play around with the price on yeah so much as well. Well, apparently that is coming Well, they've been yeah that will come just like everything comes two years delayed Which is the problems right now though. Well, actually so they're Low cost vehicle apparently they're gonna start production on that second half of 2025 They said five years ago. They were gonna start production on that So is it gonna come second half of 2025? They've been messing about with this Cybertruck thing is that gonna be a massive distraction and a tangent that that really Dogs them going forwards possibly but look back to this perfect storm. Okay, you got macro conditions. They're definitely not good, right? Let's drop price undermining margins. That's the one but on the demand side as well. You've got I read an amazing stat so hurts Biggest car rental company on the planet They've sold 33% of their EV fleet And they've bought petrol vehicles to replace them Which is the most remarkable stat in what is generally an overall story that the Momentum of the shift to EV Has actually quite dramatically Dampened I think this whole the whole the whole kind of green revolution Has lost momentum in amongst this cost of living crisis And that that was like the standout. Wow hurts They've literally gone and sold a third of their electric vehicles to replace them with petrol So you have got this slight demand shift as well and then obviously on top of that Competition and so we've been talking about BYD in China becoming the the biggest EV seller in the world now overtaking Tesla and so you know, you've got this it's coming from all angles in terms of Headwinds for Tesla and so it all translates into then What is looking like a deceleration in growth and whilst they didn't give us a figure for the number of cars? They're going to produce this year Wall Street are predicting 2.2 million vehicles, which would be a 20% increase The problem with that Musk three years ago said we're going to be on a 50% growth rate year-on-year for the next 10 years And we're three years in and it's already possibly dropping to 20 So that's your problem with the valuation and your share price and why it's off 30% So if I was Elon Musk, I would say We can do 50% for the next seven years And then the shareholders will go how and I'll say give me more stock of Tesla I will start to then pull some levers pull a rabbit out the hat like I always do I always deliver I'm the world's richest man like let's just give me my 25% Because I've sold down my stake to finance my terrible acquisition of Twitter. So I mean you got it You've got to applaud Elon here Well, so that story used the situation to his benefit There's another element to it, but you could say yeah Maybe he doesn't have enough skin in the game to care anymore. He owns 13% of Tesla now I'm having sold a massive chunk to buy Twitter But I wonder if people would be surprised by how little he actually owns because I think most people assume That Tesla is Elon Musk Well, yeah, they are one in the same, right? But but maybe not quite so much at an operating level anymore But so that angle because he said this on the call he basically and this was more about the direction of AI and robotics Right within Tesla because Tesla I mean they're quite a phenomenal company, right? And they're sat on what potentially could be the biggest and best Dataset on the planet. So when you're thinking about AI, well, you need data and you need Large language models and you need you know to train these AI's and they've got it, right? And they're also the you could argue the global leader in robotics with this optimus Kind of humanoid robot that they've built but basically Musk is going well, look guys I Can see this company Tesla if we go down the AI robotics route I can see this being the most valuable company in the entire planet. However, I'm not sure I'm Prepared to do that with Tesla. I might spin and take the AI robotics piece and do it somewhere else You know, I would like to do it in Tesla, but I'm gonna need 25% of the company It's genius. You've got to love it. It's G me us What do you do as a shout a test the shareholder? What do you do? You're like, damn it All right fine Because you'd rather have Musk and his AI and robotics Plan in-house but that extra like what 10% 11% that's gonna cost you what from the market value Valuation perspectives he's getting 100 billion Yeah Really saying all the right stuff. He's saying, you know, I want to be an effective steward Of very powerful technology. So 25% You know would give me enough of Stewardship, you know without me being you know owning the majority Um, you can't you got to love it. You got to love it If you if you don't love it you'd be consumed with hate so yeah, I've gone through the full cycle. So Yeah, I I'm gonna have to give him a pat on the back. I'm liking how he's playing The 30 drop of his company over the last quarter or last month actually All right, we said we'd end on a positive. Yeah that positive was netflix And yeah, their shares surged After they've just reported their best quarter of growth. So this is the opposite, right? Yeah, I think the sales the sales number at Tesla At 25.2 billion not only was that below street estimates It was the slowest pace of growth in more than three years For revenue for tesla and again in the contest that you were saying that's really bad Netflix best quarter of growth since viewers were stuck at home in the early days of the pandemic And their their subscriber numbers were insane. I mean against street estimates of 8.91 million They clocked in at 13.1 million new customers. This is And their stock soared Yeah, it's quite it's a great story. I think and that's that puts them at 260 million In total and it's a great story. It's almost it's a bit like meta in some ways where Netflix and meta got killed I mean, I'm talking about the stop in 2022 um in 2023 and well, so netflix was a bit before so netflix peaked during the pandemic, of course um user growth just went through the roof and it was phenomenal for them and their share price peaked at 686 bucks and that was in october 2021. Okay 686 then they plummeted and the below was june 22 Was it 167 dollars? Wow. Okay. So what were they pre-pandemic? Pre-pandemic so in let's say a back end of 2019 You look at about 267 dollars. Okay So they went yeah in 2022 they're below pre-pandemic levels and it's because Of the war the battle the streaming battle that was going on with the other competitors and basically netflix going right We've got to produce our own unique content. Let's get the checkbook out Unless just go on a spending rampage in 2021. They spent 17 billion dollars on new content. Okay And everyone was like, oh my god decelerating subscriber numbers. In fact subscriber numbers started to drop just as they were Spending way more than they'd ever done before and the margins collapsed And again, it's back to this idea of growth rates and these super stocks are on crazy valuations because we expect But nominal growth rates for the rest of man can't for sorry for the rest of time, right? So Yeah, they had a real problem. Anyway, they've really turned it around because they did the basic stuff that everyone was shouting At them to do they end it like a bit like meta Who the zooka bogus said all right fine. All right fine. I'll cut costs then You know and he did and what happens while the share price goes back up So netflix they really set about tackling their key problems, which was cracking down on password sharing Um, they've also introduced a subscription level that includes advertising which grew at 70 percent But that subscription level is phenomenal and they've increased prices All three of those are very positive for their top line without increasing costs So it feeds through straight to their bottom line and their margin was up 20 percent. I think it was um overall so um Yeah, so the yeah the operating margin I'll get the figure in a minute, but anyway obviously stellar and I think the other point when you look at the competition disney plus is still operating at a loss Okay, and netflix are increasing their lead with regards to subscriber numbers and disney now are having to cut costs and they're having to sell or license some of their content to netflix Right, so there's a so here in I think it's the key to to netflix in the future I think there's a few different things that they need to do And I think that licensing thing is really interesting because their their stock does command a premium relative to rivals that being I think they trade nearly 30 times their 12 months forward earnings or disney's Like 20 something like that. So what justifies? That valuation and what I was reading is an analyst was talking about the ongoing push to profitability at other streaming firms will force them to license more titles to netflix which may help them drive further You just basically Stealing their content you you can you almost this you've almost doubled down and you're so aggressive in the new content creation They just cannot compete and therefore You just crush them in a very ultra aggressive strategy So that was one thing the other thing is managing the forward-looking future of what can how can we capture more growth and continuous growth? video games And live programming Yeah, that was the other thing video games. We've spoken about maybe six seven months ago I'm going to talk about live programming But I think that's the natural thing for me because I'm I'm a normal consumer I have sky tv and it sickenes me how much it costs Because all I want to do is watch some mba basketball And then they've just gone and got rid of it and now I have to watch premiership football and I'm sick of it Because all when you pay for sky and it's like 80 90 quid a month and and 70 percent of that Stickiness or the value of your subscription is sky sports because without sky sports. It's dramatically cheaper Yeah, and then you're paying 10 quid For netflix for example, so live programming And the thing that came out this week alongside the earnings was netflix has agreed to a five billion dollars to screen WWE's raw which is one of the flagship titles out of wrestling Yeah, and it's their first big move into live events and I think this is really interesting from a content strategy perspective because one of the things that Not only are you buying this community that's in the hundred million plus viewership particularly north america and at a time in the macro space where confidence is returning as well from a consumer base level but Horting the drama of the wwe characters into a documentary format Some of the most successful original netflix content has been taking sports Yeah, and going behind the scenes and going into individual characters And then just like you do with the star wars saga when you spin off The different characters into sub series That's exactly what I've tried to do with sports and sports personalities that you could now do With wrestling and wrestling is full of larger-than-life characters that most people know the main one is tied into this deal was Dwayne the rock johnson Who through I think the company I can't remember what they're called tko. I think he's managed to engineer some Some skin in that game where he's actually sold all of his the rock rights image rights name rights everything within like a 10-year deal Similar to the private equity firm that did within rekay say his upside could be in the north of 50 million on the back of this and in 2023 Dwayne johnson only earned half a million So part of this I think and you know, he's just him alone his instagram following. I think it's 400 million He's like one of the top ones But yeah, if you think about the formula one drive to survive There's the tennis one drive to survive is consistently ranked in netflix's top 10 It's one of the most binged worthy measured content pieces that they have So I know wrestling is not for everyone But I think it was quite a neat move to go into a fairly matured marketplace In live entertainment, which I think is you know, there's one thing like tesla talking about AI and robotics And all okay, they have this robot that let's let's be frank. It's naff at this point. It could be something interesting in the future yeah, but You've got to deliver but at the moment How do you deliver on live programming? Well live program is not really so much as you've got to create it You just need to own the right to be able to show it It's a much easier route to the outcome if you like video games a little bit different There's this whole kind of integration software There's you know, it's more complicated. I'd say so. Yeah, I thought I thought that was interesting as well with netflix this week. It's probably helped Yeah, and I think the other point They've built this moat now Because basically as I said, they spent an absolute fortune on content when When interest rates were at zero And they debt fueled it and they they were able to borrow huge sums and invest aggressively Now they've built the Original content, but now interest rates are higher. There's no way they could do the same strategy now That they did four years ago Literally no way absolutely impossible Point being then the competition. Well, they can't do it now either And so from an interest rate point of view Yeah, they really took advantage. I'm not saying they were Geniuses and knew that interest rates were going to go up and right quick. Let's borrow huge sums now I don't think that was the strategy. It's just worked out hugely in their favor. And so they've become this This this dominant player With the kind it's almost like the ladder has been kicked out underneath them Now the debt costs a lot and so it's just hard for the hard to catch So to finish They were trading at I think you said like 230 pre-covid. They dropped to what 171 80 they rose to 680 What are they today? 562 as of the close last night. They're almost double what they were pre-pandemic then at this point Yes And they're not far that they've only traded at a higher share price um during a three Four month period in their history if they traded at a higher price than this and that was the back end of 2021 when we had the Covid bubble in some of these stocks So it looks like they're marching back to test their highs their highs was at 689 So yeah, it looks like probably this year Like this going on the evidence we've just seen in their earnings report Then there's a decent chance. They'll Look at retesting that Covid high. So yeah, another great turnaround story and it really is Well, well, we'll wrap it up there Thanks very much for your time peers And yeah, any questions at all feel free to drop a comment wherever we share the episode And yeah, we'll look forward to next conversation next week. Have a great weekend everyone. Yep. Have a good weekend. See you